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Monday
Oct182010

OptionTrader Closes 5 trades: Average Profit of 94% in 18 days

Our premium options trading service, OptionTrader, closed 5 trades this week, banking profits of 100.00%, 101.34%, 101.49%, 85.05% and 81.43%

This brings our total of closed trades to 35, with 33 winners. To demonstrate our performance, lets say a subscriber had invested $1000 in each of our 35 trades. That subscriber would have banked profits of $13742.90.

option-trader-acc-profits-5.png

Please not that these are closed trades, profits that we have taken and are in the bank, not paper gains in a portfolio that can vanish as quickly as they arrive.

In addition to this we have 3 open trades at present, showing gains of 144.55%, 140.38% and 68.75%.

We understand that what matters to investors and traders more than anything is the bottom line. Therefore our focus is on producing profitable results, and we feel we have achieved that. Our full trading record can be viewed here, which contains a complete record of all 35 of our closed trades.

Not just our best 35 trades, not a handpicked selection of 35 trades, but all 35 trades that OptionTrader has recommended and closed.

The five trades we closed this week are summarised below:


Bought GLD Jan-11 $131 CALLS @ $3.55 on 17/9/10
Sold for $7.10 on the 15/10/10
100% Profit in 29 days

Bought GLD Dec-10 $131 CALLS @ $2.98 on 28/9/10
Sold for $6.00 on 15/10/10
101.34% Profit in 17 days

Bought GLD Dec-10 $132 CALLS @ $2.68 on 28/9/10
Sold for $5.40 on the 15/10/10
101.49% Profit in 17 days

Bought GLD Dec-10 $135 CALLS @ $2.15 on 1/10/10
Sold at $4.00 on the 15/10/10
86.05% Profit in 14 days

Bought GLD Dec-10 $134 CALLS @ $2.37 on 1/10/10
Sold at $4.30 on the 15/10/10
81.43% Profit in 14 days

With a 6 month subscription costing just $99, and the average return on a trade being 39.26%, one would only need to have invested $1000 in just one average trade to have paid for the cost of subscription almost four times over!

You can subscribe to OptionTrader by clicking one of the buttons below and following the instructions. You do not need to be a member of Paypal, all you need is a valid credit card or bank account.


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Friday
Oct152010

Casey Research Identifies Next Generation of Resource Leaders with Casey’s NexTen

Casey Research logo 15 October 2010.JPG

Stowe, VT, October 12, 2010 – Casey Research, a leader in providing in-depth, independent analysis of high-growth investment opportunities, announced today Casey’s NextTen, the next generation of leaders in the natural resource industry.

Successful investors, like Casey Research founder Doug Casey, have long recognized that there are no more important considerations when investing than the people. For years, Casey Research has helped its subscribers succeed by closely following the careers of the most successful explorers in the industry, those top few percent who consistently generate the majority of returns for shareholders.

And now, it is proud to present the next generation of industry leaders to keep a close eye on -- the top 10 up-and-coming resource stars 40 years and under who are already demonstrating a strong track record in innovation, exploration, and financing – Casey’s NexTen.

“There is no question that when following the right people, the resource sector can be an extremely lucrative place to invest,” said Marin Katusa, chief energy investment strategist, Casey Research. “Over his 40 years of investing, our founder Doug Casey noticed a pattern emerge that a mere 4 percent of the entrepreneurs in the resource sector came up with over 64 percent of the wins. That is why we concentrate our efforts on finding and investing with that 4 percent.”

Over the past five years, Casey’s team of analysts have met with company heads and geologists to get to know them in the office and in the field. Using Casey’s 8Ps investment methodology – People (the most important of all), Project, Politics, Paper, Promotion, Phinancing, Push, and Price – they were able to identify the next generation of professionals who will unlock some of the huge gains waiting in the resource sector.

The inaugural Casey NexTen include:
 
#1 – Kevin Bambrough: President, CEO and Director, Sprott Resource Corp (TSX:SCP); President, Sprott Inc. (TSX:SII); Director, Sprott Asset Management; President, CEO, and Director, Sprott Consulting.

#2 – Brian Dalton: President, CEO and Non-Independent Director, Altius Minerals (TSX:ALS).

#3 – Pat DiCapo: Managing Director, PowerOne Capital Markets; Director, Exempt Market Dealers Association; Director, Petrolifera Petroleum Limited (TSX:PDP); Chairman, Governance Committee, Petrolifera Petroleum Limited.

#4 – Amir Adnani: President, CEO and Director, Uranium Energy Corp (NYSE:UEC).

#5 – Dr. Nicole Adshead-Bell: Vice President Investment Banking, Haywood Securities; Director, Association for Mineral Exploration British Columbia. Kevin Campbell: Vice President Investment Banking, Haywood Securities.

#6 – Jorge A. Ganoza Durant: Geological Engineer, President, CEO, and Director, Fortuna Silver (TSX:FVI).

#7 – Morgan Poliquin: President and COO, Almaden Minerals Ltd (TSX:AMM, NYSE:AMM).

#8 – Govind Friedland: President and CEO, Govi High-Power Exploration (Private Company).

#9 – Nolan Watson: President, CEO and Director, Sandstorm Resources Ltd. (TSX-V:SSL);
Director, Gold Wheaton Gold Corp. (TSX:GLW).

#10 – Robert John “Lucky Shot” McLeod: Director, Underworld Resources Inc. (Recently acquired by Kinross); Director, Keegan Resources Inc. (TSX:KGN); Director and VP Exploration, Full Metal Minerals Ltd. (TSX-V:FMM); Director, Nuukfjord Gold (now Revolution Resources, TSX:RV).

Maximum resource exploration profits depend on investing at the early stages of a company’s growth. Investing in the right companies run by the right people is crucial. Casey’s two premier advisory services – Casey’s Energy Report and Casey’s International Speculator – will track the progress of the NexTen and report on any breaking news or deals-in-the-making they are involved in, providing a unique opportunity for investors to be close to the action and aware of the best opportunities in resource exploration investing today.

To get more details on Casey’s NexTen and Marin Katusa’s top stock picks from this group, go to www.caseyresearch.com/nexten/.

Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us.

SK Chart 11 October 2010.JPG


The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Thursday
Oct142010

Jerry Swank: The Man with the MLP Plan



Source: Brian Sylvester of The Energy Report  10/14/2010

Jerry Swank.JPG

Master Limited Partnerships (MLPs) are just about the most stable asset class in America, and the man with the MLP vehicles is Jerry Swank, founder and managing partner of Dallas-based Swank Capital. In this exclusive interview with The Energy Report, Jerry and Libby Toudouze, partner and portfolio manager, provide a comprehensive and insightful look at the MLP business and offer readers a bounty of MLP names.

The Energy Report: Jerry, tell us about your firm.

Jerry Swank: I've spent my life in the investment business. I spent 14 years on the sell side at First Boston, the predecessor to Credit Suisse. During my last 10 years there, I was a director and ran the fixed-income business as a portfolio manager. Then I ran a private oil and gas (O&G) research and consulting firm called John S. Herold, Inc. I think the fact I know the energy business and the fixed income business lead me to MLPs.

When I decided to start this business in 2002, my goal was to build a Wall Street-quality research department on the buy side. We were one of the first to bring institutional-quality research to this very inefficient sector. We've grown primarily in the hedge fund business. But we've also broadened our mandate to include an MLP closed-end fund. And we have an ETN based on our Cushing 30 MLP Index. We have over $1 billion under management and are affiliated with Riverstone Holdings, the largest private equity firm in the space.

TER: Did you see quality analysis as a means to become more widely accepted as an asset class?

JS: Certainly. MLPs were a retail product. When we started, there were several MLPs that had never had serious investment analysis. The local UBS broker would just take a look at the various MLPs and buy the ones with the highest yield.

We now have models on every MLP company. We know every management team. We know the assets as well as you can from this side. That's given us a leg up.

TER: Enterprise Products Partners, L.P. (NYSE:EPD), one of the largest MLPs by market cap, recently made an offer for its general partner, Enterprise GP Holdings, L.P. (NYSE:EPE). It's become something of a trend for the parent MLP to takeover its general partner (GP). What do you think of that trend?

JS: I hate it because we own a lot of GPs and it's taking a lot of very good companies from us. I owned general partners in '02, '03 and '04—when there wasn't even a research report on them. We actually have a dedicated general partner hedge fund, Cushing GP Strategies Fund. I've had all these GPs that were stable businesses, growing their distributions at 15%–20%, which is a very attractive proposition. Hopefully, we will see some new GPs come to market.

TER: Why is it happening?

JS: The general partners own an increasing part of the cash flows of the underlying MLPs. As MLPs' distributions rise, the GPs' distributions increase at a rate anywhere from 2x–4x as fast. Because they take an increasing part of the cash flow, it has increased the cost of capital for the underlying master limited partnership. As a result, it's more difficult to do transactions, acquisitions and organic growth projects.

It happened with Magellan Midstream Partners, L.P. (NYSE:MMP). It's happening with Buckeye Partners, L.P. (NYSE:BPL) and its Buckeye GP Holdings (NYSE:BGH) and Inergy Holdings, L.P. (NYSE:NRGP). Since then, we've also had two more GP buyouts in the coal space.

It's not only the cost of capital, but there are some tax issues in the Kerry-Lieberman Energy Bill that specifically relate to individual holders of the GPs. The owners could face some tax consequences. On top of this cost-of-capital issue, I think this potential tax hit is causing this trend.

TER: But isn't it also the fundamental structure of MLPs that is causing these takeovers?

JS: Yes, that's true. In 2003, when Enterprise bought GulfTerra, it reduced the top split from 50% to 25%. I agree with the math. But it's really only when you get to the 50% splits for a long period that it's a serious problem.

On the other hand, you have Kinder Morgan Energy Partners, L.P. (NYSE:KMP), which is the second largest MLP by market cap. It took its GP private three years ago, and rumor has it the company's going to bring it public again. Rich Kinder, who really is the guy who founded the MLP business when he left Enron, steadfastly believes that he can properly grow his business in the top splits. And you can't argue because he's done a great job.

Targa Resources Partners, L.P. (NYSE:NGLS) also wants to bring its GP public. And maybe Plains All American Pipeline, L.P. (NYSE:PAA), too.

TER: You named maybe six MLPs that have bought their GPs. Should investors be buying more GPs belonging to the large MLPs?

JS: I think the trend will soon be over because of the timeframe on this tax issue. But, yes, I would take this money—and we always have—and invest it in the remaining GPs. Those are names like Energy Transfer Equity, L.P. (NYSE:ETE), Alliance Holdings GP L.P. (NASDAQ:AHGP), NuStar Energy, L.P. (NYSE:NS) and Penn Virginia Holdings L.P. (NYSE:PVG). I would invest it in those because the fundamentals of the GPs are so strong compared to the underlying MLPs.

TER: Do you own Energy Transfer Partners, L.P.'s (NYSE:ETP), GP, Energy Transfer Equity?

JS: Yes, we own Energy Transfer Partners, L.P.'s general partner, and we've been buying more. ETP has had seven or eight quarters of fairly flat earnings. It is in the natural-gas transportation business and controls most of the pipelines out of the Barnett Shale—the largest natural gas field in the United States. And ETP has great exposure to the Haynesville, which will be the biggest one. It's had rapid, rapid growth out of the Barnett for several years.

Unfortunately, because gas prices are so low, there's no differential from gas prices in west Texas and New York. You would think that gas prices in New York would be higher than they are in the middle of the west Texas desert, but the curve's been very flat. That's hurt them because they ship a lot of gas from west to east and that spread has been flat for the last year. But they've been investing billions in new pipelines, and they just had some pipelines like Tiger Pipeline coming onstream. We think you ought to be buying here because it's a getting ready to go back to a grower. We play it primarily through the GP. Although we do own some of the MLP, we own the GP because the dividend will start growing fast and it's just crazy cheap in our judgment.

TER: Which GPs are paying distributions?

JS: The remaining GPs that are paying distributions are Energy Transfer Equity and NuStar, Penn Virginia, Inergy and Alliance. The two that aren't paying dividends at this time are Crosstex Energy, L.P. Ltd. (NASDAQ:XTEX) and Atlas Pipeline Partners L.P. (NYSE:APL). They aren't paying distributions yet, but they will fairly soon. Then we have a few diversified companies that have the GPs inside of them. Those names include Atlas Energy, Inc. (NASDAQ:ATLS), El Paso Corporation (NYSE:EP), ONEOK Partners, L.P. (NYSE:OKS) and Williams Companies (NYSE:WMB), which is a very interesting play. We've always been overweighted in general partners. We've always understood the math and they've always been a great investment for us.

TER: How long should people hold the GPs?

JS: For the long term. These things have yields in the 5% range. The underlying distributions are growing at double-digit rates. And the underlying businesses are very stable. Where else would you see double-digit growth rates with absolute yields of 5% or 6%? These are the same assets, same management as the underlying MLPs; it's just a different financial structure.

TER: You own a lot of GPs, but 5% of your publicly traded portfolio is MLP bonds. If you're holding an MLP's bond, which are earning interest, and the same MLP's units, which are often paying high yields, aren't you getting paid twice? And is that the strategy behind holding them?

JS: You're one of the few guys that hit the nail on the head. MLPs pay distributions four times a year; so, in theory, you only have to own them four days a year. The rest of the time, they don't make any income. During that period, we take some of our holdings and put them in MLP bonds where we're getting +7% yields. We can earn interest on those 89 days of the month when you don't get it. So, yes that's one reason we do that. I wouldn't say it's getting paid twice, but we're using our money pretty efficiently.

TER: What are some names that you're into on both of those levels?

JS: It depends on who's in the market. We used to own the bonds of Energy Transfer, ETP. We now own the bonds of general partner ETE and Regency Energy Partners, L.P. (NASDAQ:RGNC). We've owned Plains All American and Enterprise, and recently bought some Targa bonds. It just depends on who in the market has the more attractive deal. There's not much spread left in the really strong investment-grade names like Kinder, Plains, Energy and Enterprise.

TER: MLPs are a cash-intensive business. They're paying out all of their distributions so companies need to constantly raise money in order to expand and buy other assets. In the tech sector, we've recently seen IBM and Microsoft raise literally billions with 3-year bonds. IBM's were at 1% and Microsoft's were at 0.875% per year. Do MLPs have similar access to cash right now?

JS: Yes, MLPs are voracious users of capital. That's really the only weak link in MLP story.

MLPs don't get as favorable rates because IBM and Microsoft are double A and triple A rated issuers. Because MLP balance sheets are 50% debt and 50% equity, at best they receive triple B investment grade ratings. So, instead of borrowing at 1%, we're talking about 3.5% or 4.25%.

While the spread is higher, their access to capital, debt and equity is very good right now. With these low rates, virtually all of the MLPs are funding out their bank debt with term debt.

Also with these very low levels of interest rates, returns on capital are going to be fairly high because the spreads they're making between the return on projects and the cost of debt are very wide.

TER: Are there a couple of names with some of those high-return projects that you could share with us?

JS: Yes, on aggregate, billions are being invested in the shale gas plays. We have built out most of the Barnett and the Haynesville pipeline systems. But everybody and their brother is trying to get involved in the Marcellus. MarkWest Energy Partners, L.P. (NYSE.A:MWE) probably has the best exposure.

Several companies are trying to do pipeline take-away capacity drop in the Marcellus: El Paso Pipeline Partners, L.P. (NYSE:EPB) and Spectra Energy Partners, L.P. (NYSE:SEP). These MLPs and their parent companies have been very involved in those projects. And ONEOK just announced a big project to get natural gas liquids (NGLs) out of the Bakken, which is a big oil play in Montana. But most of the large MLPs have $200–$300 million in organic projects, like small add-on pipelines or storage facilities they can do every year at attractive rates of return.

Magellan Midstream just bought a big package of assets from BP Plc (NYSE:BP; LSE:BP) in the Cushing area to add to storage. Plains All American keeps adding storage facilities, too. There's a lot of capital being spent at very good margins right now.

TER: If you include natural gas storage, 35% of your public portfolio is directly in the natural gas business. With natural gas prices obscenely low, why do you have more natural gas–related MLPs than anything else?

JS: A couple of things. We're out of the gas storage business right now because of some weak fundamentals and the shape of the gas curve.

Our MLPs have to build out the pipeline infrastructure in the shale plays. Primarily these pipelines are toll roads, especially the long-haul gas lines that get the natural gas from Texas/Louisiana to the East Coast and the Midwest. It really hasn't mattered if gas is at $4 or $10, El Paso, for example, is getting paid to move the product under long term fixed contracts.

Most of the pipelines that have been built in the last couple of years by Energy Transfer, Boardwalk Pipeline Partners, L.P. (NYSE:BWP) and Regency; almost all of these are fully committed by the oil and gas exploration and production (E&P) Companies.

It's kind of a Catch-22. On the E&P company side, these guys have continued to drill and find gas and push the price down. That's bad for their stocks. But for the guys transporting it, our toll road guys, it's good because they've had more volumes.

In the transmission business, we have El Paso, Boardwalk. These are the big guys. Enterprise Products Partners is big in the natural gas liquids. Other names include Kinder Morgan, Oneok, Sempra Energy (NYSE:SRE) and Williams. These are all large-cap MLPs. The average market cap in this space is probably $10 billion. These are stable, high quality companies.

TER: Do any of those names have specific catalysts for growth in the near term?

JS: I would say all of those names have different projects coming on. As I said El Paso is doing things in the Marcellus. Oneok is doing things with natural gas liquids and building a new pipeline out of the Bakken. Those are a couple of examples of natural gas guys that are adding capacity and growing.

TER: There have been some unfortunate pipeline accidents of late. A couple of spills have involved pipelines owned by Enbridge Energy Partners, L.P. (NYSE:EEP/EEQ). Could this be a buying opportunity for EEP?

JS: Have you been listening in on my meetings? Well, yes, Enbridge is a great buy. It's controlled by a huge Canadian utility company with a huge market cap. It's a very good company. They had some issues with a couple of leaks but they've been fixed. They have insurance; they didn't blow up the business. We very much view this weakness in Enbridge as an interesting buying opportunity.

TER: You're not worried about lawsuits?

JS: I don't think that anything that's happened is a result of huge neglect. This has got a lot of publicity because of BP's Macondo accident.

I would submit that the pipelines managed by MLPs have higher maintenance standards and are in better shape than ones run by other companies because it's the MLPs' only business.

I think you'll get more federal regulations as it relates to maintenance and things like that. But we think that will have a minor impact going forward.

TER: Another thing EEP is doing is building a pipeline out of the Bakken.

JS: Yes, EEP is building a pipeline to connect to their big main line, Lakehead. The Bakken is one of the few growing oil fields in the United States. It's a shale play. Production is 120,000 barrels a day and it will probably be 400,000 barrels a day in two years, big play. There's not enough capacity to get the oil out so you've got several people building new pipelines.

Lakehead is a few hundred miles away. EEP is building a 200- or 300-mile pipeline that they can hook into both on the Canadian and U.S. side to get the oil down to Cushing and the Gulf Coast.

TER: You're a sponsor of the Cushing 30 Index. Could you tell us a little about the Cushing 30?

JS: I'll let Libby, the creator of the ETN, contrast that against the other indexes.

Libby Toudouze: We're the sponsor and creator of the Cushing 30 MLP Index. S&P calculates and maintains it.

We designed it because there really wasn't an index out there that truly represented the asset class. The few that were out there were market cap–weighted and that gives you too much company specific risk. Five companies probably make up as much as 50% of the market cap weighted From a fiduciary standpoint; that's not a prudent way to manage a portfolio so the market cap indices are not a good benchmark. The Cushing 30 MLP Index is well diversified due to the equal weighting methodology.

Much like our active portfolio management, we developed a fundamental proprietary ranking system and basically ranked the MLP universe. The top 30 names that made the index are a great representation of the true infrastructure companies and we believe the true benchmark for the asset class. It doesn't include upstream and it doesn't include the shipping MLPs because those are a little more commodity sensitive.

We think the index will help drive some institutional flows into the MLP space. Credit Suisse launched an ETN based on this index. RBC has done some private structured notes on this index. We have several managed accounts based on the index. We've got big institutional accounts that want to swap into the index so the Cushing 30 MLP Index is really helping the asset class grow.

We have also launched the Cushing MLP High Income Index. There will be an ETN based on that index sometime later in the fall. With that index we developed a methodology to select the highest yielding MLPs. Again, with a couple of fundamental screens and you can get a 150 basis point pickup from the Cushing 30 MLP Index.

We think those are two good options to represent the asset class, depending on your focus. And, hopefully, we'll bring more money to the space.

TER: Since its inception what sort of annualized returns has the Cushing 30 had?

LT: The Cushing 30 has had a compound annual return of about 20%. Just for perspective, the closest performance by another index was I believe 17%, which was a new index that was market cap weighted but with a cap. The rest of the MLP indicies are around 15%.

JS: It makes a very representative index for portfolio managers to use.

TER: What does it mean to be a sponsor?

LT: It means that we created it and we will license it to people. And our index department maintains it.

The Cushing 30 is designed to be a static index. That seems to be a very good attribute for an index. When a name drops out, rather than re-ranking the entire index, the 29 that are still in there remain unless there are a couple of features that would kick them out. The balance of the universe is re-ranked and the number-one name goes in. That happened this year in the 3Q as WMZ was bought and PVG replaced it.

TER: Could you comment on MLPs going from something that was primarily held by retail investors to an asset class that is increasingly being held by large institutions?

JS: I'm not sure that's completely true.

First, and I've said this since 2004, this is just like the Real Estate Income Trust (REIT) business was in the 1990s. We have an asset class that looks a lot like REITs. You have real assets, real cash flows and high yields. The difference is the underlying MLP business is actually a better business than the majority of the REIT businesses were.

Finally the asset class is getting big enough that institutional money can enter. But more importantly, what I think is happening is that we're getting institutions, but the structure of the retail holding has become institutionalized. Let me explain that.

In the past these assets were 60% to 70% owned by retail. It was in your brokerage account at UBS, at Goldman, at Citibank at Morgan Stanley, etc. Your broker owned 5 or 10 of these stocks. Now with the advent of some new structures, the closed-end fund structure, the ETN structure, the retail broker is getting professional management. He's getting one statement. He's getting consolidated tax returns. No K-1s.

So he's selling those six or seven stocks and buying these funds. They're still owned by retail investors, but it's in an institutional wrapper with institutional management.

And I would define institutions as pensions, endowments, state funds etc.

LT: I'd just add that the sector's $225 billion market cap is helping. As Jerry mentioned, the different structures have really opened the doors. But when you are a pension fund or an endowment in today's environment, you've always struggled with balancing growth and income. Here is an asset class that can give you both and at high levels. You mentioned the IBM and Microsoft bonds paying 1% or less. Where can they find high yields like this plus growth? I think the fact the asset class has grown to this size is driving the pensions, endowments and foundations to take a hard look at this asset class.

TER: Thank you for talking with us today.

Jerry V. Swank has 34 years of experience in investment management and research analysis. He is the former president and CEO of John S. Herold, a 50-year-old independent oil and gas research firm. Prior to that, Jerry was director of CS First Boston and a former buy-side analyst and portfolio manager. He earned his MBA from the University of North Texas and BA in economics from Missouri University.

Libby F. Toudouze, Partner and Portfolio Manager for Swank Capital's offshore MLP funds and the Swank Best Ideas Fund, L.P. has 24 years of experience in the investment management business. Prior to joining Swank Capital, she established and ran a family office, where she developed investment policies, created an asset allocation framework and analyzed investments in both private and public markets. Libby received her BBA from Southern Methodist University and an MBA from The Cox School of Business at Southern Methodist University.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Energy Report conducted this interview. He personally and/or his 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: Atlas, Enbridge and Energy Transfer Partners.
3) Jerry Swank: I personally and/or my family own shares of the following companies mentioned in this interview: Energy Transfer Equity, Energy Transfer Partners, MarkWest Energy, Atlas and Regency. I personally and/or my family am paid by the following companies mentioned in this interview: None.
4) Libby Toudouze: From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
Streetwise - The Energy Report is Copyright © 2010 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.
From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.
Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.
Streetwise Reports LLC
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5593
Fax: (707) 282-5592
Email: jmallin@streetwisereports.com


Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us. We are currently raising stops on a tranche of options in order to lock in profits.

SK Chart 11 October 2010.JPG


The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Thursday
Oct142010

Whilst Gold Prices Rise, OptionTrader Recommendations Soar!

Gold prices continue to make decent gains providing most gold bulls with substantial returns. However buying effectively using call options, our premium options trading service OptionTrader has banked gains ten times higher than holding gold itself or being invested in the HUI index.

optiontrader example trade gld calls

At OptionTrader, the key focus is identifying major moves in gold, then choosing suitable options trades that maximise our return as gold prices move whilst still limiting our risk, maintaining a strong ethos of risk management.

Such strategies have enabled us to close 28 of our 30 completed trades at a profit, with an average return of 30.13% per trade, this figure includes our losses.

In addition to this we currently have 8 open positions at present, all of which are in profit ranging from 31.25% to 82.69%.

We understand that what matters to investors and traders more than anything is the bottom line. Therefore our focus is on producing profitable results, and we feel we have achieved that. Our full trading record can be viewed here, which contains a complete record of all 30 of our trades.

Not just our best 30 trades, not a handpicked selection of 30 trades, but all 30 trades that OptionTrader has recommended and closed.

Investing $1000 in each of these trades would have produced $9039.80 in profits before commission costs.


optiontrader profits 2

With a 6 month subscription costing just $99, and the average return on a trade being 30.13%, one would only need to have invested $1000 in just one average trade to have paid for the cost of subscription three times over!

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Sunday
Oct102010

U.S. Objects to Russian Uranium Deal

The Moscow Times 11 October 2010.JPG


This deal appears to be hampered by its inclusion of the Iran in the mix, by association it makes the American authorities a little uneasy as a Russian producer attempts to acquire a 51% stake in Uranium One, who in turn control 20% of the uranium market in the United States.

This is an extract from The Moscow Times on the subject:

Russian uranium producer Atomredmetzoloto maintained a calm front Friday in the face of objections by powerful U.S. legislators to a deal that would give it control over a uranium mining operation in the United States.

The Rosatom subsidiary is completing a complex transaction with Canada's Uranium One that would raise its share in the Canadian company to 51 percent. The transaction requires approval from the U.S. Treasury Department's Committee on Foreign Investment because of Uranium One's mining activities in Wyoming.

"We have provided all relevant information requested in the U.S., and elsewhere and we expect approval in due time," ARMZ spokesman Dmitry Shulga said. He declined to comment further.

Four Republican members of the U.S. House of Representatives sent a letter to Treasury Secretary Timothy Geithner urging him to block the Russian-Canadian deal, The Washington Times reported Tuesday.

According to the newspaper, the lawmakers pointed out past links between Rosatom and Iran, and wrote that the Russian federal agency has "shown little if any inclination to effectively address the widespread and continuing corruption within Russia, particularly its energy sector."

Additionally, the senators wrote that they "remain concerned that Iran could receive uranium supplies through direct or secondary proliferation," despite Uranium One assurances to the contrary.

Rosatom spokesman Vladislav Bochkov responded to the mention of corruption with perplexity.
"It's some sort of nonsense," Bochkov said Friday. " You can only respond emotionally to that kind of statement. What are they referring to? It's hard to speak without facts."

The legislators, Ileana Ros-Lehtinen of Florida, Spencer Bachus of Alabama, Peter King of New York and Howard McKeon of California, stand to become heads of House committees that could potentially intervene in the deal, should the Republicans take control of the House in the November elections.

Uranium One controls 20 percent of the U.S. uranium market through its mines in the Powder River Basin of Wyoming. The United States is the world's largest consumer of uranium products.
Anton Khlopkov, director of the Center for Energy and Security, saw the U.S. politicians' actions as an example "of how Russian business can or cannot work abroad, especially in the U.S."

"People understand this is unfair, especially when the Iran issue is raised," Khlopkov said.


Its a knotty problem yet to be resolved so we will keep an eye on it to see just how it unfolds.


Back to our latest venture which was the launch of an Options trading service, we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us.

SK Chart 11 October 2010.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.


Friday
Oct082010

Cameco Corporation Up 4.15% Yesterday

CCJ Chart 09 October 2010.JPG


Despite all the turmoil in the stock markets Cameco Corporation (CCJ) has been making steady progress culminating in a 4.15% rise yesterday, as we can see on the above chart. Also worthy of note is the 50dma which looks set to cross over the 200dma, in an upward motion. This cross over when it occurs is usually a positive indicator for the stocks progress. However, the technical indicators are at the top end of their ranges, in particular the RSI is in the overbought zone, so we might be in for a breather shortly. The volume was heavy yesterday which was also nice to see.

Cameco is a world leader in low-cost uranium production. Our operations provide 16% of world mine production and we have approximately 480 million pounds of proven and probable uranium reserves and extensive mineral resources.

Cameco has controlling ownership of the world's largest high-grade uranium reserves and low-cost operations in northern Saskatchewan, Canada. Cameco produces nuclear electricity through our 31.6% share of the four Bruce B reactors at the Bruce Power nuclear power generating site, North America's largest nuclear generating station, located in Ontario, Canada.

The flag asset is of course, Cigar Lake, which is the world's largest undeveloped high-grade uranium deposit. The mine is currently in the development phase with the latest target completion date being mid-2013 for the first production. Mine construction began in January 2005, but setbacks occurred in October, 2006 and August, 2008 through separate water inflows into the mine. The source of these inflows were identified and then sealed prior to dewatering. Remediation work continues underground through the remainder of 2010 to restore mine infrastructure after successful dewatering of the mine was achieved in February, 2010.

Cameco Corporation trades on the NYSE under CCJ and on Toronto under the symbol CCO with a market cap of $11.74B. It has a P/E ratio of 21.32 and earnings of $1.40per share.


Meanwhile, over in our options trading den they were stopped out of one trade last night for a profit of 33%, having closed a trade the night before with a profit of 82% which follows the recent success of closing a trade which generated a profit of 50% in 30 days on GLD Call Options, so they now need update their progress chart, yet again, which will probably be done this weekend as things are a little hectic at the moment. However, to see exactly how it is going, please click this link.


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.







Friday
Oct012010

Where Are Oil and Gas Prices Heading Next?

Oil to Gas Ratio 02 October 2010.JPG

By Marin Katusa, Chief Energy Strategist, Casey Research

Oil is heading to US$200 per barrel. This isn’t speculation but hard fact. But forewarned is forearmed, and with this price expected within the next five years, investors have plenty of time to position themselves.

We recently have been talking about tools that investors can use to navigate the economic landscape. The gold-to-oil ratio is one such tool, but another popular compass is the oil-to-natural gas ratio.

The oil-to-natural gas ratio relates more to nuances within the energy complex, rather than the gold-to-oil ratio, which relates to monetary values. It’s the WTI Cushing price of crude oil per barrel to the Henry Hub Spot Price for natural gas per million thermal units.

In theory, based on an energy equivalent basis, crude oil and natural gas prices should have a 6-to-1 ratio. Market characteristics, however, have dictated that since 2006, the price of oil follow a pattern of 8-12 times that of natural gas.

As the chart below shows, historically the oil-to-gas ratio from 1990 to 2008 was in the low 9s. This means one barrel of crude oil was equivalent to about 9,000 cubic units (Mcf) of natural gas.
 

 
Improved drilling techniques and access to immense shale gas fields across the country have seen a boom in domestic gas production. Nor can gas wells just be shut down willy-nilly. The complexities of a gas well mean that it takes anywhere between three to six months to shut down operations.

And while the number of rigs sprouting up each year is decreasing, natural gas production is on the rise, with many of the shale wells coming online with their sources fresh and untapped.

Thanks to this flood of shale gas, the oil-to-gas ratio has risen to almost 17 on average. That is, one barrel of oil is now worth 17 Mcf of natural gas (17,000 cubic feet of gas)!

When we defined the oil-to-gas ratio, we used the term “thermal units.” It is interesting, then, that based on thermal units, one barrel of oil produces as much energy as roughly 6 Mcf of natural gas. So from a financial perspective, the oil-to-gas ratio is very different than in terms of energy.

Some companies and analysts use this disparity to their advantage, using the 6 instead of the 17 value to come up with the “barrels of oil equivalent” conversion for the value of gas. That’s a fudge factor of 2.8!

It’s an accounting mechanism that’s been turned into a completely legal but very shady promotion mechanism, one we watch for carefully.

It’s worth knowing that things can change very rapidly in the natural gas market. We do believe, though, that the current trend will continue for years to come, with the oil-to-natural-gas ratio ranging between 15 and 20.

For long-term investors, the oil-to-gas ratio is indicative of a paradigm shift in the markets. It is yet another tool in our collection of crystal balls for the economy and, if read correctly, is a great way to add some valuable holdings to a portfolio.

(Fortunately, you don’t need a crystal ball to profit from energy. All you really need is a subscription to Casey’s Energy Report, which you can try for three months, risk-free, by clicking here now.) 



Over in our options trading den they have updated the chart to show all the closed trades as of today, so you can see exactly how it is going, please click this link.


OptionTrader Profits



Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.



Silver Wheaton has certainly outperformed so far this year securing a long term supply of silver at fixed prices.



Tuesday
Sep282010

Hoeing the Rough Row with Porter Stansberry


Source: Karen Roche of The Energy Report 9/28/10
http://www.theenergyreport.com/pub/na/7474

Three decades' worth of no-holds-barred credit led to oppressive debt for Americans and America. It left us a financial wreck; with our currency collapsing and efforts to spend our way back to prosperity stumbling at every turn. For more about Stansberry & Associates Investment Research Founder Porter Stansberry's take on the perilous predicament—and his coping strategies—read this exclusive Energy Report interview.

The Energy Report: The National Bureau of Economic Research announced last week not only that we are out of the recession but that in fact, it ended in June 2009. They did note that it was the longest recession since the Great Depression. Did this announcement surprise you?

Porter Stansberry: On one hand, I expected the authorities to come out and say everything is getting better at some point, and I also expected that pumping enough money into the economy could stimulate some economic activity. So, I guess in that way, I was expecting it.

Then, in a deeper, more intrinsic way I wasn't expecting any significant improvement to the economy whatsoever. I would argue about the meaning of this conclusion, too, and point to measurements of our national net worth as being the appropriate gauge to measure whether we're experiencing any genuine economic growth. America's net worth continues to fall in terms of the average household net worth, and also, of course, our government's net worth is growing in the red dramatically every quarter.

So while I'm pleased that there is more economic activity, I wish there was more employment, and that we were heading in the right direction in terms of growth of median incomes and net worth. But I'm unfortunately very pessimistic that any real increase to net worth, either measured by the government or by individual households, can be achieved when the government continues to paper over our problems with more credit and more money instead of making our economy more competitive on a global basis.

TER: But measuring net worth as the true driver, hasn't individual net worth really been decreasing over the last decade? Wasn't the perceived net worth really based on debt?

PS: The average household income has really stagnated since 1971. For a while, it continued to increase in terms of statistics, because more and more families had two wage earners. During the '70s, household income looked as if it was still increasing but factoring in the additional wage earner, it didn't change at all. And then it began to decline in the late '90s, and has continued down for the last 10-12 years.

So in terms of household incomes, we've definitely gotten much poorer over the last 30 years, and that's just a measure of income. In terms of net worth, meaning all of our balance sheets—our assets minus our liabilities—America was richest on paper in the spring of 2007 before the start of the mortgage crisis and the real estate bust.

TER: You're talking about individual net worth, not corporate net worth?

PS: Exactly, talking about median household net worth, median household income. So, individual incomes have been stagnant and/or declining for more than 30 years, and individual net worth has fallen precipitously since 2007 and continues to do so.

You can survive your income falling if it's not dramatic. Your income can decrease for a long time before you start living beyond your means. I think what's happened to America, in a cultural sense, is we stopped getting richer as a country in the early 1970s, but we haven't adjusted our consumption patterns in any way, shape or form to meet the realities of the new lower income. As a result, debt has piled up over the last 35 years. And of course as you add debt without increasing income, you're reducing your net worth.

And look at the size of the U.S. federal government debt outstanding today—not the unfunded obligations; just the bonds that are outstanding—and you look at the federal government's annual revenue, the debt is now 356% of the revenue. If the federal government didn't own the world's reserve currency, you can imagine that it would be impossible for that government to get credit anywhere. No one would lend to an entity that's so far in debt as the government already is. And yet it's the government that continues to provide additional stimulus to the economy by adding to its already swollen obligations.

So the government continues to pump money into the economy via expansion of credit and/or straight out printing money (via quantitative easing). That has a diminishing-returns effect, so people would argue now that "cash for clunkers" and TARP, etc., didn't do anything.

In the middle of this train wreck, our currency is gradually being debased and efforts to restart the economy with additional spending aren't working. They probably can't work. How long does this continue? How much debt gets racked up before real, true panic sets in and people simply start to flee the currency at all costs?

TER: How long? How much?

PS: I don't know the answers. But I don't believe the current strategy is feasible. I think the only thing that really can be done—it would be painful, but less painful than the calamity we're heading toward—is to demand that people be responsible for their private obligations. No more bailouts, no more stimulus, no cash for clunkers. You, the American people, have to live within your means starting on this date.

If we then defaulted on the U.S. government bonds, we'd tell our creditors, "We're going to give you a certain percentage of our tax receipts, but we have to renegotiate our debt because we can't pay it back." It would be really bad for six or nine months, but then I think things would be great because you would have washed out all the excesses, people could get back to work and the dollar would fall to a value that would make our economy very competitive on a global basis.

TER: Demanding people live up to their private obligations on a par with the defaulting on U.S. government bonds strikes me as curious. On one side, I see individuals who have benefited least from any stimulus—in fact, many of them are unemployed, losing their homes and going into bankruptcy. The banks are the ones getting bailed out.

PS: When I say that people have to be responsible for their private obligations, I'm talking about the big banks, right? If a bank actually had to be accountable to its depositors, there's probably not a major bank in the United States that would be open tomorrow. I mean we're all comfortable with the banks because we know that the printing press stands behind them. But that's no way to run an economy. For the economy to work, there has to be winners and losers and people have to be responsible for their obligations. We're living in a socialist dream right now, and it's going to end up becoming a socialist nightmare. These dreams always do.

Creditors of people cannot continue to expect the government to guarantee every obligation. It simply isn't feasible. It can't be done. You can't guarantee every mortgage in the United States. You can't do it. Likewise, the U.S. government's creditors have to understand that there is such a thing as government default on debt. It happens all the time. If you make a loan to a government that is in as far over its head as our government, you're making a bad bet.

TER: In terms of stagnant individual income, enormous obligations and declining net worth, is what you've described unique to the U.S. or would you also put other leading countries in that same bucket?

PS: In scale, I'd say it's unique to America. The scope that we have continued to consume above our level of income is oppressive, and it was enabled by the fact that our paper currency is the world's standard. So we had no barriers to credit, which meant that we could borrow a heck of a lot more than anybody else and end up with a lot more debt than anybody else.

The macroeconomic problem of stagnant-to-falling median household income is common throughout the developed world. That has only one cause, which is poor competitiveness. We don't work as hard as our Asian competitors, to put it in plain terms. But in America, unlimited access to credit exacerbated the problem.

TER: To what extent has government debt increased to cover the increased credit provided to individuals?

PS: Over the last three years, what's happened is a huge transfer of obligations from private balance sheets to public balance sheets, right? The biggest and most important example—which isn't even discussed in Congress or in Washington as being a problem, which is truly amazing—was shifting $10 trillion of obligations owed by two private corporations, Fannie Mae and Freddie Mac. We shifted responsibility for all those credits onto the U.S. Treasury. That had the impact at the time of doubling—doubling!—our entire national debt in one swipe of the pen. That's just an incredible transformation that took place when the government decided to guarantee all of Fannie's and Freddie's creditors, when you know what Fannie and Freddie really own with all that money they borrowed is pretty much every mortgage in the United States.

You can see that we as a nation have decided that the government ought to be responsible for our mortgages. In a way, that's us saying we believe the government ought to be responsible for all of our private debts.

TER: And where does that lead?

PS: It's interesting isn't it? That was the goal of every socialist regime in history, right? And yet, here we are in America living in the new socialist utopia where no private citizen is really responsible for their private debts. It all becomes a matter of social obligation.

You know, I don't think it's any real great surprise to any thinking person when I say I doubt this experiment has a happy ending. I don't think you can socialize everyone's private obligations and end up with a good economic result.

TER: Is the only outcome some big train wreck?

PS: I'd argue that we're in the midst of the train wreck. We're going to see a continual increase in sovereign debt around the world, even though, according to any standard model of repayment all the leading sovereign debtors are already bankrupt.

I got a report in my inbox last week from Morgan Stanley (NYSE:MS) in London, basically going over all the different sovereign debt problems. It's really amazing because this is sort of a mainstream investment bank, and they had reached all the conclusions I had reached independently, which is that all these Western countries are completely upside down. Their economies aren't growing, their populations are aging and there's no way that they can generate enough revenue to begin to repay their debts, which continue to grow every year. And all the evidence out there says that risks of a major, major financial catastrophe in the Western economies continue to grow.

TER: Won't all the equity markets crash in that kind of catastrophe?

PS: No, not necessarily. As I mentioned, I'm not particularly bullish, but in some situations equities offer better value than bonds, and in some situations stocks will do well, at least in the short term, because of exposure to Asia.

But the truth of the matter is that equity offers you a hedge against inflation as well because the company's earnings and the company's assets will continue to grow in price along with inflation. In theory, dividends also should increase to match inflation. The case study here is the share price of The Hershey Company (NYSE:HSY). I have studied the price of chocolate and Hershey's bars over the last 70–80 years. Hershey went public in 1926; so, it offers a really nice template to see how changing rates of inflation and even periods of financial catastrophe such as The Great Depression affect a blue chip stock. The answer was really fun; it turns out that chocolate is a slightly better hedge against inflation than even gold. So, the world's leading branded maker of chocolate did quite well, thank you, and there are plenty of other examples from businesses of all stripes. Companies that have a good competitive position can typically raise prices as much as inflation, or more.

Equities should do well even in hyperinflation. The downside is that during periods of hyperinflation, the earnings multiples on equities disappears. So, even really good companies like Hershey and Wal-Mart and Johnson & Johnson will be trading at four, five or six times earnings, maybe even less. And that's really tough for investors if you happen to buy the stock at 12 times earnings or—heaven forbid!—at 18 times earnings. That reduction in the earnings multiple can wipe you out.

So that's why I've been telling my readers to be extremely, extremely, extremely conservative. Buy the very best companies only when they're trading at absurdly cheap prices and offering you a nice yield to protect you. And if you're not willing to short stocks as well, don't buy stocks at all; stay in cash and gold. If you had been in cash and gold this year, you would have been just fine. If you had been following my portfolio, you would have done very well, too, not because we did great with the stocks we bought, although they did okay, but we did great with the stocks we shorted.

TER: So, looking through to the end of 2010, will you maintain an aggressive shorting strategy?

PS: I have pulled back the reins on new shorts; I haven't added to my short position in the last two months due to the return of quantitative easing. I expect we'll probably end up covering most of our short book before the end of the year. After that, it depends on whether we find good opportunities to short on an individual company basis, and it depends on how the markets and the asset prices react to the quantitative easing. I can't make any prediction about what exactly our strategy will be in 2011 because we're not there yet. I'm still trying to survive 2010.

TER: The default discussion has been going on for quite a while, and with elections coming up, it seems that we can expect either additional stimulus or quantitative easing. What's the straw that finally breaks the camel's back?

PS: I can only tell you that no one really cares about a creditor's debt load up until the moment that everyone cares. The Greek bond yields didn't move at all until the market went into a panic six months ago over them, and yet the creditors all had the data on the way the Greek economy was working for years. I vividly remember reading commentary in the late 1990s of well-known economists saying there's no way Greece should ever be part of the EU because they have a kleptocracy, basically a government of thieves. But they still were able to borrow money on ridiculous terms up until the moment people decided not to lend them anymore.

TER: Well, they're actually still lending them money.

PS: Yes, but only with that $185 billion bailout fund standing behind the Greek credit. Otherwise, no one would have lent them any more money. Greek bonds that are denominated in euros are not going to default. Rightly or wrongly, creditors believe that they can get an extra 200 basis points at yield by buying Greek debt instead of German bunds, because to the creditor it's the same thing. Now that the Germans have not allowed the Greeks to default, in reality the credit risk of the Greek bond is no more or less than the German bund. So you're giving speculators all the basis point difference for free. That's the way they see it.

Even more interesting than the fact the Greeks were bailed out, the stock market has picked up noticeably in the last several weeks, which coincides exactly with the beginning of the latest European quantitative easing. The same thing happened in the spring of 2009 in the U.S.—asset markets and asset prices of all types start going higher every time there's more quantitative easing. It's not because those assets are becoming more valuable, but because people are fleeing the currency every time the printing presses come on.

TER: And how likely is more quantitative easing in the cards in the U.S.?

PS: The answer is absolutely, 100%, for sure, yes, there will be. And I think it will cause asset prices to rise. I don't think it will cause our economy to have any real benefit.

Of course, it's not just the federal government that's in big trouble. If there were a real rating agency, California's rating would be lower than Greece's. I read somewhere that something like 300 separate agencies have the power to issue bonds under State credit in California. And there are going to be bankrupt municipalities all over the United States; Harrisburg, the capital of Pennsylvania, declared bankruptcy this month.

TER: Earlier this year you advised your readers to not be upset to be sitting in cash and be really careful about the markets because there's tremendous volatility. For those who didn't want to truly hedge themselves in equities, you recommended short-term Treasuries and gold. If asset classes are going to increase in value in every quantitative easing, why wouldn't you recommend equities?

PS: When the quantitative easing started in March of 2009, I was wildly bullish, the most bullish I've probably been in my entire career. I told people straight out that equities are much cheaper than precious metals; they're cheaper than bonds. I did put my readers into a lot of stocks in 2009, and we made a lot of money.

This year, the Fed had promised to stop its quantitative easing, which made me very cautious because I believe as soon as the quantitative easing stopped, asset prices would fall again. And so I've recommended more individual short positions this year than I ever recommended before.

TER: How's that working for you?

PS: I think I recommended at least eight new short positions, and so far, not surprisingly, all of them have been profitable, some wildly so. Now that the quantitative easing is beginning again with the Europeans, I think that will be seconded at some point by the U.S. and, therefore, I think it is time to consider buying stocks again. But I'm simply not as wildly bullish as I was before because on an overall basis, stocks in general aren't as cheap as they were in March of 2009.

Having said that, I think there are some uniquely good values out there—most notably global blue chip companies that are exposed to growth in Asia. You don't have to be a stock analyst to know these companies because you're familiar with their brands—Johnson & Johnson (NYSE:JNJ) and Wal-Mart Stores Inc. (NYSE:WMT), Intel Corporation (NASDAQ:INTC) and Microsoft Corporation (NASDAQ:MSFT). You'll find a lot of situations where you can buy global blue chip businesses that have big exposure to Asian growth where your dividends in the stock are going to pay you more money than buying the bonds! That's an incredible anomaly.

TER: Do bonds currently represent more risk or is this purely a yield calculation?

PS: I don't want to scare people out of high-quality bonds. I am not expecting any sort of corporate bond market catastrophe in the near term, and as long as you're dealing with relatively short duration stuff you will be fine. If you're buying a bond that matures in five years, you're taking some inflation risk, but not really all that much. But still. . .why would you take any inflation risk in a bond when you can buy stock in the same entity that is yielding more? You wouldn't. And yet, some people are doing exactly that. . .

TER: Point taken. Are you shorting U.S. Treasuries?

PS: Not any more. I got out of that trade a couple of months ago because it started to go against me, and I didn't want to have a loss, but I think you're completely out of your mind if you buy U.S. Treasuries that are yielding—what are they yielding now?—less than 3%? It's mind-boggling; I can't begin to understand it. I really can't. People holding long-term—i.e., 20-year—U.S. paper are sitting on a ticking time bomb. The losses in this asset class will be epic, of historic proportions.

TER: In our last conversation, you predicted something that was extremely contrarian at the time, when you said that the total environmental impact from the Gulf spill would not be as draconian as was being published. You also suggested at that time to buy BP Plc (NYSE:BP; LSE:BP) and Anadarko Petroleum Corp. (NYSE:APC) because they were undervalued, and indeed, both BP and Anadarko have had some pretty nice increases since July. Is there any continuing upside on these types of oil stocks or will an overhang of negativity restrict these stocks from reaching their former highs?

PS: Well, full disclosure, I ended up buying both equities this summer. That I own them both personally should tell you a little bit about what I expect. Obviously, I must believe there's more upside to each stock or I wouldn't own them. But we have a policy as newsletter publishers; I don't write about any position that I am in and I don't buy the stocks that I cover in my newsletter. I understand the argument about having skin in the game, but as an independent publisher, it's very important to analyze each situation and each company completely objectively without giving any thought to whether I am in the stock personally.

TER: When we had that conversation, the issue of increasing regulations on offshore oil drilling was constantly in the news. It isn't getting much attention now, but do you feel there will be any significant regulatory changes as a result of the spill?

PS: No. Any regulatory effort will be captured by the industry and would be used to protect the incumbents against new competitors, and I am sure that will happen. As a nation, we need onshore and national oil and gas production, and I am sure we're going to continue to have lots of it. So I am not at all concerned about the regulatory burden for any of the oil companies in the country.

And I'll go a little bit further. There's been a lot of talk about the risks of fracking and these gas reservoirs. Someone made a movie suggesting that an oil company in the area was responsible for people having natural gas in their water wells. While I'm certainly not denying that oil and gas reservoirs sometimes leak into water reservoirs, it goes on all the time as a consequence of natural geography much more so than drilling pipes, which are usually less than four feet across. It's much ado about nothing, and the oil industry has always had its critics, going back to Rockefeller and Ida Tarbell. People making claims against oil and gas companies are as old as the oil and gas business.

TER: As you've noted before, the world will continue to rely on oil because it's such an efficient form of energy, relatively easy to find and extract, dense and portable. Considering the growth in Asia you alluded to earlier, do you buy into the peak oil argument?

PS: No, peak oil is one of the greatest promotional ideas ever created to the benefit of oil and gas speculators and investment bankers. To me it represents such bad thinking and it's so intellectually bankrupt that I get frustrated just commenting on it. It just doesn't make any sense because if peak oil were a real phenomena, if it were truly possible to exhaust the world's reservoirs of hydrocarbons in the earth's crust, how come every single prediction of when hydrocarbon production will cease has been wrong, every single time in every single region?

One of the graphs that the peak oil guys would pull out in early 2000 showed onshore natural gas production has been declining since 1974, and that chart was accurate up until 2001, when we discovered a new way of extracting natural gas. Ever since then, natural gas production has gone up, and is now approaching a new all-time high.

The point is that our ability to produce hydrocarbon energy—oil and natural gas—is not limited by the supply of hydrocarbon energy, it's limited by our knowledge and technology for extracting it. Human beings are remarkably adaptable and resourceful and creative, and we will continue to discover new and more efficient ways of creating, extracting and using hydrocarbons. The idea that we will run out of hydrocarbons is mostly used to scare people who probably shouldn't be investing their own money.

TER: Given that and what a barrel of oil trades for, is oil a good investment at this point or will it really just be going sideways?

PS: Is oil a good investment? Oil is really a good investment over the long term because it is remarkably useful to such a degree that the lower the price goes, the more people will use it, which tends to put a floor under its price. If you study the history of oil, you know it certainly goes down a lot sometimes when people start using less of it because of economic declines. But it doesn't stay down very long, and it always comes back and goes higher.

So oil is a great investment, but that said, I am very conservative about buying oil today due to the economic problems I expect in a lot in the major developed countries. With those problems, I don't think global demand for oil is going to go anywhere for a while, and I know the supply is increasing dramatically because of new technologies and new discoveries.

So I am not particularly bullish on oil right now, and I don't expect to become bullish on oil for a long time. But that doesn't mean that oil is a bad investment, and it doesn't mean that you can't do very well buying lots of different aspects of the oil complex.

TER: Are you still bullish on nuclear energy? Do you still see undervalued companies in the sector?

PS: Yes, I'm still relatively bullish on nuclear energy on a global basis, but when we talked last I was particularly bullish on both Exelon Corp. (NYSE:EXC) and Duke Energy Corp. (NYSE:DUK) because they were really, really cheap. They were trading for four or five times cash flow, and yielding more than 5%, which seems like a fantastic opportunity in an era of less than 1% government bond yields and all the other uncertainties.

Both of these companies remain undervalued. They're both well run, regulated utilities. I would favor Exelon a little bit over Duke just because they have more of a nuclear plant, and I am still very wary of cap and trade. I don't know if cap and trade will pass this year as I once anticipated, but unfortunately the global warming madness is not going away. Efforts to retard the consumption of coal here will be continual. If you want cheap, reliable electricity in the United States, you're not going to do it with paddle fans and mirrors on top of buildings. If you want to get off of hydrocarbons, the only option that's even reasonably affordable is nuclear energy.

TER: You've been really savvy at picking out opportunistic investments themes. You've shared some today with the global blue chips. Are you looking at any new investment opportunities that you can share with us?

PS: Just to reiterate, I really think that the highest quality blue chip companies in America that have good global businesses are really cheap. Most people don't realize that Wal-Mart does more than $100 billion—$100 billion, with a B—a year in sales in emerging markets. They're just now really getting going in China, and just opened their first couple of stores in India. So I think Wal-Mart has an enormous amount of growth ahead in those markets.

I would also point to Intel, which is also in my newsletter as a recommended buy for the same reasons—super cheap, great global business, the absolute leader in its field—as with Wal-Mart, as with Johnson & Johnson, as with Microsoft. I like all those kinds of blue chip stories, and I really think it's an exceptional opportunity when you can get these stocks that have a great global business and are paying you more in dividends than you'd get from coupons on their bonds.

But let me be perfectly clear about this: I am not expecting any home runs, you know? If you can make 10% to 15% a year in these stocks over the next 10 years, count yourself lucky.

TER: At the beginning of our conversation, you were talking about how household net worth has been deteriorating. How does one build wealth at that rate?

PS: Those are actually very, very good returns—exceptional returns.

TER: Assuming inflation doesn't take it away.

PS: Right, assuming that. But of more than 21,000 mutual funds in the U.S., do you know how many did better than 10% a year for the last 10 years? Not even 250 of them. And you know what else? All of those funds that did better than 10% a year specialized in either precious metals or emerging markets—all of them. You're not going to get rich just by buying domestic U.S. stocks. I just don't think it's going to happen. If you want to do well in this period of global turmoil, in this period of very, very poor competitiveness in the U.S. and in the developed economies compared to the emerging economies, you have to really pick your spots like I did when I bought BP and Anadarko. You can make money on a crisis like that, or you need some real specialty in finding the right kind of resource situations. That entails taking on enormous risk, which isn't appropriate for most retirees.

But a typical individual investor, someone over the age of 50 with net worth of less than $1 million, really the only thing you can expect to do for the next 10 years is just survive. The best way to do that is to buy these really good global blue chip companies when they're paying reasonable dividends. If you're making 5% a year on the dividend on something like an Exelon, the stock doesn't have to go up all that much for you to get to that double-digit return.

TER: That's encouraging.

PS: It is. If you're getting a double-digit return on U.S. stocks, you're doing a great job.

TER: Very good. Would you expect better than double-digits in U.S. stocks that focus exclusively on emerging markets?

PS: I would, but I also would caution anybody against getting involved as a direct resource play investor or a direct emerging markets investor if they don't have a lot of financial experience and expertise. Those markets are very difficult. This is what I do full time and it's not easy for me, so I just don't think that's appropriate for most people. That's why I've told my readers if they're not willing to short stocks, go to cash and gold and just sit on it, because it isn't going to be a great year in stocks. It's not going to be worth the risk.

So far, fortunately, that's been the right advice.

You have to realize the enormity of the problems our governments have gotten us into and you can’t forget about them. There was a $185 billion bailout in Europe? Well, Europe's governments are $3 trillion in debt. That little bailout that kept Greece will not solve their problem. Likewise, $1.7 trillion of quantitative easing in the U.S. is tiny in contrast to $15 trillion in debt. In other words, we're at the very beginning of these problems. They haven't gone away.

If you try to get really aggressive under these circumstances, if you try to go after growth stocks or start buying whatever the latest commodity is, you'll end up taking a beating. In this environment, it's going to pay to be cautious.

TER: Very good perspective. Thank you, Porter.

After serving a stint as the first American editor of the Fleet Street Letter, the oldest English-language financial newsletter, Porter Stansberry put out his shingle at Stansberry & Associates Investment Research, a private publishing company. Celebrating its 10th anniversary last year, S&A has subscribers in more than 130 countries and employs some 60 research analysts, investment experts and assistants at its headquarters in Baltimore, Maryland, as well as satellite offices in Florida, Oregon and California. They've come to S&A from positions as stockbrokers, professional traders, mutual fund executives, hedge fund managers and equity analysts at some of the most influential money-management and financial firms in the world. Porter and his team do exhaustive amounts of real world, independent research and cover the gamut from value investing to insider trading to short selling. Porter's monthly newsletter, Porter Stansberry's Investment Advisory, deals with safe value investments poised to give subscribers years of exceptional returns, while his weekly trading service, Porter Stansberry's Put Strategy Report, shows readers the smartest way to book big gains during the ongoing financial crisis.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Karen Roche of The Energy Report conducted this interview. She personally and/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: None.
3) Porter Stansberry: I personally and/or my family own shares of the following companies mentioned in this interview: BP and Anadarko. I personally and/or my family am paid by the following companies mentioned in this interview: None.
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Over in our options trading den they have updated the chart to show all the closed trades as of today, so you can see exactly how it is going, please click this link.





OptionTrader Profits





Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Monday
Sep272010

Denison Mines Corporation: Up 7.32% Today on heavy volume

Denison Chart 28 Sep 2010.JPG


Taking a quick look at just what others are saying regarding Denison Mines Corporation (DNN) we have three differing opinions as below:

Thomson Reuters: Under Perform
Smart Consensus Report: Hold
Market Edge Second Opinion: Long

Nothing conclusive there then!

However when we look at the chart we can glean that Denison Mines has improved of late and yesterday the stock price increased 7.32% as turnover increased dramatically to 2.8 million shares. The technical indicators are high and are now in the overbought zone suggesting a breather could be on the cards which could be a buying opportunity for those who are looking to add Denison Mines to their portfolio.

As an overview of the company this is an extract from their web site:


Denison Mines Corporation is a diversified, growth-oriented, intermediate uranium producer with three active mines in the United States. Denison’s assets include an interest in two uranium mills in North America, with its 100% ownership of the White Mesa mill in Utah and its 22.5% ownership of the McClean Lake mill in Saskatchewan. Both mills are fully permitted. Denison also has other mines and projects on stand-by in Canada and the U.S.

Denison’s 2009 production from its two mills was 1.4 million pounds U3O8 and 0.5 million pounds of vanadium. 2010 production is estimated to be 1.6 million pounds U3O8 and 2.8 million pounds of vanadium.

Denison enjoys a global portfolio of world-class exploration projects in close proximity to the company’s mill in the Athabasca Basin in Saskatchewan, including the Wheeler River project where Denison announced the new Phoenix discovery in 2008. Denison also has exploration and development properties in Mongolia and Zambia which will provide future production in two to three years.


In a recent report regarding the results from the final 13 holes of the summer drill program on its Wheeler River property in Saskatchewan, Denison said that significant results included WR-343 which returned 16.20% eU3O8 over 1.7 metres and WR-345 which intersected 2.7 metres grading 17.59% eU3O8, both of which were in Zone A of the Phoenix Trend. In Zone B, WR-347 returned 9.88% eU3O8 over 2.0 metres andWR-348 intersected 6.28% eU3O8 over 2.8 metres. The attached map illustrates the results of the summer drill program.

Ron Hochstein, President and C.E.O. of Denison, commented, “We are very happy with the results of the summer drill program as it has extended the overall strike length of both Zones A and B, by approximately 55 and 110 metres, respectively, confirmed the continuity of the high grade mineralization over the entire strike length, and identified two new mineralized zones along the highly prospective Phoenix Trend on the Wheeler River property.


With the spot price of uranium improving recently just maybe things are looking up for Denison mines and this sector in general.

Denison Mines Corporation trades on the AMEX under the symbol of DNN and on the Toronto Stock Exchange as DML.

Market capitalization is $597.91million, average volume is sub 1.0 million shares traded, however, yesterday saw 2.8 million shares change hands, 52 week high $2.07, 52 week low $1.08, closed yesterday at $1.76.

Over in our options trading den they have updated the chart to show all the closed trades as of today, so you can see exactly how it is going, please click this link.



OptionTrader Profits


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Uranium Spot Price chart 28 Sep2010.JPG





Thursday
Sep232010

Edward Guinness: Solar-Powered “10-Baggers”

Source: Brian Sylvester of The Energy Report  9/23/10
http://www.theenergyreport.com/pub/na/7446

Edward Guinness.JPG

Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund, says the best opportunities in the alternative energy space involve solar power. "We are unusually positive on the solar sector," Edward says, noting that power produced from solar sources will double in 2010. Edward divulges some solar-powered "9- or 10-baggers" in this exclusive interview with The Energy Report.

The Energy Report: Edward, please tell our readers about London-based Guinness Atkinson Asset Management and its namesake Alternative Energy Fund.

Edward Guinness: The origins of Guinness Atkinson go back to the early 1990s when Tim Guinness and Jim Atkinson set up the U.S. division of Guinness Flight Asset Management. After Guinness Flight had been sold to Investec, Tim and Jim were able to buy the U.S. business in 2003 and called it Guinness Atkinson Asset Management. At that time, Guinness Atkinson had around $100 million under management. We have since grown that to around $500 million, and we have launched three additional funds, two of which are in the energy space.

We run a conventional energy fund, the Guinness Atkinson Global Energy Fund, and the Guinness Atkinson Alternative Energy Fund. We have been running funds with our conventional energy strategy since 1998. The average annualized return, even though we have had such terrible markets recently, is still around 16%. Within that we had been looking at the alternative energy space, but we had only ever made one investment in an alternative energy stock.

Tim decided that the alternative energy industry had reached the size where there was a big enough universe for us to form a separate fund, and that it merited a separate fund because the long-term dynamics of the industry are highly attractive and are different from those of the conventional energy space.

In March 2006, with Matthew Page and myself as co-managers, we launched the Guinness Atkinson Alternative Energy Fund. We had very good success in the first two years; we built the fund up to $150 million under management. We're now back to around $45 million under management. I feel the sector and the fund have been through quite a rough period, but we're getting to a point where concerns about the economy are built into stock prices, and absolute valuations in terms of price multiples are very low. We're pretty excited about the next 18 months for the fund.

TER: You launched the Guinness Atkinson Alternative Energy Fund in 2006 for U.S. investors. Then you launched the Guinness Alternative Energy Fund in 2007 for non-U.S. investors. Do you think European investors' appetites for alternative energy exceed those of U.S. investors? If so, what do you think accounts for that?

EG: I think European investors generally have a greater understanding and enthusiasm for the sector. That's based on the fact that in Europe there is much greater visibility of the actual technology in terms of the huge number of wind and solar projects and the returns that are being generated by those projects.

At the same time, I think investors in Europe are more cautious on investing in funds, whereas American investors are much more sophisticated in recognizing the benefits funds bring to an area like this.

TER: That's noteworthy. So with American investors and alternative energy, is it a case of "out of sight, out of mind?"

EG: Perhaps. I think people in the U.S. are more concerned about the broad market, and if people are worried about the broad market, alternative energy is another area that they're worried about. I don't think investors have returned to thinking this is an area that is actually going to outperform even if the economy goes sideways, which is what I think will be the case.

TER: You see alternative energy as something of a hedge against the broad market?

EG: I wouldn't describe it as a hedge, but I think it's something that over the next 5 to 10 years can do well even if the broad market doesn't. You might say that's a hedge, but it's not in the sense that it should perform very well if the broad market actually goes up.

TER: All right, let's play devil's advocate for a moment. A recent Guinness Atkinson research report said, "Oil is fine, but running out; yet demand for energy is rising. We have to find alternatives that will be affordable and secure." But the world's proven oil reserves stand at 1.3 trillion barrels or enough to last 80 years at current consumption rates. It's also thought that the industry will discover at least half of those reserves or more during the next 80 years. Are we getting ahead of ourselves when it comes to short- and long-term demand for alternative energy versus fossil fuels?

EG: I think the question as posed is not looking at the whole picture. I think that the other piece is that the oil still in reserve is becoming more and more expensive to extract. If we pay enough, we will keep finding oil for hundreds of years because clearly that would subsidize more and more advanced extraction techniques. What that means is that prices are going to rise over the next 10 to 20 years. Even if you look at extraction from the oil sands, my understanding of the cost of production there is $50–$60 a barrel. For natural gas, there's been a huge enthusiasm about shale gas, but the marginal cost of production there is not at $4 per thousand cubic feet (MCF), which is where the current gas price is. I understand that it's more like $6 or $7 per MCF.

I think we are quite weak "peak oil" believers; while the reserves are finite, we don't think we've peaked yet. We're consuming 86 million barrels a day today; we think that in the next 15 years consumption is going to go to 100 million barrels a day. We think that demand will be met, albeit at higher prices. Actually, our view on demand is that it's going to be even stronger than that based on the strength of Asian demand.

The reason to be enthusiastic about alternative energy is because of the rising costs for fossil fuels, rather than the idea that next Thursday we're suddenly going to run out. The flipside for the alternative energy industry is that you have technologies that are still falling in costs.

TER: But nonetheless, prices for alternative energy remain comparatively high at the moment, if you were to average the various forms.

EG: That is a fairly common myth. If you look at the core technologies that are deployed today of hydro, biomass and geothermal, sources of alternative energy are competitive with coal, nuclear and natural gas on a price basis. And the cost of wind can be as low as $0.05 a kilowatt-hour on good sites, which is broadly competitive, provided that the wind supply remains below 25%–30% of the mix, and we're nowhere near that yet. Solar is clearly a lot more expensive, but it's getting considerably closer. The path for solar to reach a point where it becomes quite a viable distributive source of electricity without significant subsidies is within our grasp.

Germany has put the most effort toward getting it there, and they do have high electricity prices. The electricity prices in Germany are north of $0.30 per kilowatt hour, and the feed-in tariffs that they are now paying to the solar providers are only just above that. The tariffs will fall through those levels in the 2011–2012 timeframe..

TER: So Germany's taken the approach that "it's expensive now but will only get cheaper, and it's sustainable." Is that correct?

EG: The way the German industry works is that if you install a solar panel, you get a guaranteed price for the electricity that it generates, which is actually not subsidized by the government. It is subsidized by the energy consumers and the cost is passed across all users. The additional uplift to people's bills to pay for that is between $2–$3 a month per household—that's not a crazy amount in the vast scheme of things. The government does not fund this, so it doesn't weigh on government finances. We're not worried that that's going to be one of the first schemes to be cut, although we do expect the tariff declines to continue as planned.

Once you start to have a feed-in tariff that is below the retail electricity price, you will then start to lower the blended cost of electricity as you get more and more solar panels installed.

TER: In America, some states have introduced progressive legislation to encourage the adoption of different forms of alternative energy. Do you believe that the United States needs a broad alternative energy plan akin to what Germany has introduced?

EG: Clearly, the German policies have effectively resulted in a high level of installation; so to a point, yes. I think the U.S. at the moment is a market that shows huge potential in the solar space that it is struggling to fulfill. The main areas being worked on in the U.S. are utility scale projects. Such projects have been a struggle with the weak economy, because the price that the large utilities are prepared to pay for power purchase agreements (PPAs) is low. That also relates to low natural gas prices. But the cost the people are paying in the U.S. is still 20%–30% higher than what people are now paying in Germany for fully installed projects. There's huge fat yet to come out.

We are optimistic that the U.S. is a bit like a large ocean liner, and that once it gets pointed in the right direction and gets going, it will build up a huge head of steam.

On the wind side, the U.S. had a market-leading position four to five years ago, albeit with jerky levels of installation. Every other year the government would introduce a two-year extension to the subsidy program. You would have one year of massive construction, and then everyone would put away their tools for a year, which was pretty unhelpful.

China has overtaken the U.S. as the world's leading installer of wind turbines. Our understanding is that the prices that the utilities are prepared to pay for PPAs means that lots of wind projects in the U.S. are now on hold. And we're looking for that market to be a smaller market in 2010 than it was in 2009, which is something we'd like to see addressed because it's not a very long-term view on things.

TER: You mentioned China. What impact is China having on alternative energy?

EG: It's been reasonably popular to paint China as the bad guy of change in the last five or six years, and I am not convinced that that is entirely warranted. While they are still building new coal plants because they have to, they have some of the most progressive policies—aggressive policies as well as progressive—for putting new wind and hydro plants in place.

They have been supportive of the solar industry in terms of expanding the manufacturing base, which has been a key driver in getting costs down. The cost of solar modules has fallen by over 50% in the last two years.

They're also looking at putting in place tariffs that would encourage the installation of solar photovoltaic (PV) in China. I think they've identified the industry as a real core growth sector in which they can be key players on a global basis. About 25% of our portfolio consists of Chinese companies. And those are Chinese companies that typically have their listings elsewhere.

That's a sign that this industry is moving to a much more commoditized level where the ability to manufacture at low costs is what's most important. The Chinese are doing the same in the wind industry, although they're probably five years behind where they are in the solar industry.

TER: In your fund's portfolio, 17 of the 36 companies are solar energy companies. Why is there such a heavy weighting toward solar?

EG: First, we are unusually positive on the solar sector. Industry analysts were expecting this year to be a terrible year for the solar industry. Actually, it looks like the industry is going to have grown from around 7 gigawatts (GW) last year to somewhere in the 13–14 GW range this year. The industry's size has doubled. This means that companies have been able to operate plants at full capacity or above, which has been hugely positive for margins.

People are very worried about demand next year. But what we're seeing from the core players is that these companies are managing to sell out 2011 demand because the companies doing the major installations have good project pipelines on which they can make decent internal rates of return (IRRs). They are planning on pushing ahead with those.

Here is another thing to think about. Solar is mostly a utility product now, but as the costs come down, it's going to be much more of a residential offering. Residential solar in Germany now accounts for 70%–80% of all sales. I think that the mobile phone industry will at some stage prove to be an interesting parallel because people are talking about residential solar in the U.S. being a very niche product. You see some new developments with the installation. But once the costs come down to a point where people can generate $0.10–$0.15 per kilowatt hour and receive financing so that they're not actually carrying all the up-front costs, I think you will start to see the dynamics of the industry in the U.S. change dramatically.

It's hard to say how quickly it will develop, but at the right price, a large percentage of the households in the U.S. will have solar.

We're really excited about the solar space. We think the evaluations are hugely attractive, and solar is the space that has the most potential to grow. It's the area where we're most likely to catch some 9- or 10-baggers within the portfolio.

TER: What are some of those companies that you believe could actually increase 9 or 10 times?

EG: I would pay attention to Yingli Green Energy Holding Co. Ltd. (NYSE:YGE). Then there's Trina Solar Ltd. (NYSE:TSL). Trina and Yingli are, I'd say, top-tier Chinese module manufacturers. They are both getting good brand positioning, as well as good brand awareness in European markets.

I would also look at LDK Solar Co Ltd. (NYSE:LDK) and Renesola Ltd. (NYSE:SOL; AIM:SOLA). These are two companies that have been hugely punished for being highly leveraged. But as things turn around, that leverage becomes a huge plus in terms of the potential returns.

Both of them are low-cost wafer manufacturers, which is part of the manufacturing process for making solar panels. They are cost leaders in that specific space, which is actually starting to experience something of a bottleneck.

TER: How about some other alternative energy ideas?

EG: Two other companies are in a completely different area that highlights another interest we have. We have holdings in companies called WaterFurnace Renewable Energy, Inc. (TSX:WFI) and LSB Industries, Inc. (NYSE:LXU), both of which are leading manufacturers of ground source heat pumps. Those are two stocks we hold in the efficiency sector.

What I am really excited about is that when we start to see a pickup in U.S. housing starts, I think they will be primary beneficiaries. It seems like every new development has a major focus on energy, and ground source heat pumps are the most cost-effective way of improving the energy consumption of a development. We think they'll become, if not required by government, de rigueur among developers. Both those companies have performed really well through what have been extremely difficult times, which shows the recognition for those products and how strong the demand is.

TER: Why do you only have two geothermal companies in your fund's portfolio?

EG: In terms of geothermal, I would love to have more in geothermal because I am a huge geothermal enthusiast. However, the number of listed companies in the space is very short, and some of them are lower-quality companies where we might have some concerns. And a number of companies in this space have been trading at very, very high multiples, which we haven't liked.

Take Ormat Technologies Inc. (NYSE:ORA), which is one of our holdings. I would describe them as the Google Inc. of the geothermal space. They're the ones with lower-temperature geothermal sites, which I think will be key to the growth of the sector. They do installation and they've built a huge portfolio of plants, which they're not getting full value for in the market. I would love to find more companies like Ormat that we could hold at the same sort of valuation, but there just aren't the opportunities out there.

TER: One of your holdings in the Guinness Alternative Energy Fund is First Solar Inc. (NYSE:FSLR), which is ranked seventh on Fortune Magazine's list of the world's fastest growing companies. Tell us about that one.

EG: We try to have the 30 best ideas in our portfolio, and it is one of those ideas. First Solar is the world's leading thin film manufacturer. They have a cost advantage on a dollars-per-watt basis for installing solar, which makes them very, very attractive for large-scale utility projects. Notwithstanding that, they have a low efficiency cell, so if you're looking to get the most energy from your roof, they're not the best way to go about it. If space is not a constraint, they are definitely on the list of people that will be considered for any project.

The shares are actually expensive compared with other stocks we have in the solar space, probably because of their product differentiation and strong management team. First Solar's management has promised quite aggressive targets and has over-delivered on those targets. We think very highly of the company, notwithstanding the fact that its multiples are in the high teens on an earnings basis. It is very well placed to be one of the leaders over the next 5 to 10 years.

TER: Yes, but its Q210 results were $1.84 per share, down from $2.14 per in Q209 and $2.00 per share in Q110. Those results were based on lower margins for their panels. To me, that suggests that there is growing competition and it has forced them to lower prices. Is that a threat?

EG: It is a threat, but to put it in perspective, I think they're at around $0.80–$0.90 cost per watt for manufacturing panels today. The best-in-class solar companies in the PV space in China are hoping to get to $0.80 a watt in about two year's time. I understand that the road map for solar takes them down to the $0.50–$0.60 level. We're reasonably optimistic that they are going to be able to maintain their advantage.

Clearly, margins are a little bit tighter. They now have price competition coming from panels that are much closer to their price point, but they are still below the general PV module price point.

They're expanding the business into what I describe as higher quality earnings. They have a very good pipeline of projects that they are developing. While the margins in those projects are lower, they will enable First Solar to keep growing the core business and position the company for growth.

You have to think about the margins not just in terms of them being squeezed, but also the fact that their margins are going to be higher quality. By higher quality, I mean margins that can't be eroded because they're direct cash flows from projects.

TER: What's First Solar's share price upside?

EG: That's a stock where I'm hoping to make maybe two to three times my money over the next three to five years. It has a $12 billion market cap. I think turning it into a $30 billion company is quite doable, but also quite a challenge.

TER: Do you have some final thoughts on the alternative energy sector?

EG: Yes, I think people should be looking to make the alternative energy sector a small part of their portfolio that is focused on growth. Clearly, alternative energy is still at an early stage, but I really want investors to be clear that this is not a technology play. You are investing in companies with real revenues and real earnings. And you're not relying on huge changes in technology for the industry to grow.

We're only at the foothills today. I mean if the wind industry continues growing at 20% per year, which has been its growth rate for the last 10 years, we would only get to 10% of the world's electricity generation by 2023. And the solar industry, which has been growing around 30% a year for the last 10 years, would only get to around 5% of world electricity from solar by 2023. At that point, I think investors will have seen substantial returns on their investments in this space.

TER: Many thanks, Edward. We appreciate your time.

Edward Guinness joined Guinness Asset Management in 2006. Mr. Guinness is co-manager of the Guinness Atkinson Alternative Energy Fund. Prior to Guinness Atkinson Asset Management, Mr. Guinness worked for HSBC in corporate finance beginning in 1998, and then in 2002 joined Tiedemann Investment Group, New York, in merger arbitrage. Mr. Guinness graduated from Magdalene College, University of Cambridge, with a Master's degree in Engineering and Management Studies in 1998.

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DISCLOSURE:
1) Brian Sylvester of The Energy Report conducted this interview. He personally and/or his 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: None.
3) Edward Guinness: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I am invested directly in one of our alternative energy funds.
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