Commodity News And Mining Stocks

Interview with Kim Husebye of Lakeshore Securities

2009-11-19T09:03:00.002-08:00

A short conversation with Kim Husebye, VP & Portfolio Manager at Lakeshore Securities

Bio: Kim Husebye, CFA, CMT is licensed as an Investment Advisor and Portfolio Manager in the province of Ontario, and has more than twenty years’ experience in brokerage and investment management.

Kim graduated from the University of Toronto with a Bachelor of Science and double majors in Commerce and Applied Mathematics.

In 1994 he earned the Chartered Financial Analyst designation (CFA), and in 2006 he earned the Chartered Market Technician designation (CMT).

In 2006 Kim attended Investor’s Business Daily Masters Program in Los Angeles, which was taught by Bill O’Neil and six of his top portfolio managers. In 2007 he successfully passed the associated exam.

Q: Mr. Husebye, in the face of the recent volatility in the stock market, a number of Elliot wave practitioners are calling the recent rally from the lows a bear market rally and that we are now in a secular downtrend, does your fundamental and technical analysis concur with this view?

A: We are in the final stages of a bear market rally which began in March 2009. In Elliott Wave terms, this is Primary Wave 2, which is a counter-trend move. A 50% retracement of the initial bear market decline would place the S&P 500 at 1121, which is only about 10 points away, as of this writing. We may or may not reach that target – in any event, the rally is very close to being finished, if it isn’t already.

Further evidence that we have indeed been in a bear market rally includes the following:

• Volume and breadth have been waning.
• The action during the rally has been “corrective” in nature, meaning that the wave structures have been overlapping and in groups of three.
• Bullish sentiment has reached high levels – a contrarian indicator.
• Sales and earnings growth outlooks remain soft, while valuations remain high
• Dividend yields never increased to the levels associated with typical bear market bottoms.

My 12-month target for the S&P 500 is below 500 (S&P 500 at 1090.60 at the time this was posted)

Q: What is your near and long term outlook for the Canadian Dollar with respect to the US Dollar? While the general viewpoint of most market commentators calls for a decline in the US Dollar, I have heard a few technical analysts (primarily the Elliot wave practitioners again) call for an uptrend in the US Dollar, once again, does your analysis concur with this view or not and why?

A: The Canadian dollar likely peaked out at 97.69 on October 14th. The Loonie will depreciate significantly from current levels, particularly when commodity prices start sagging, which probably will coincide with a major rally in the US dollar.

My intermediate target for the Canadian dollar is well below 80 cents (Canadian dollar at 93.40 at time of posting)

It is important not to confuse the US/CAD dollar relationship with that of the US Dollar Index. The USD Index measures the value of the US dollar against a basket of foreign currencies, of which the Canadian dollar is a small part. The USD Index is in the process of bottoming, after which I expect a powerful rally that will take most market participants by surprise.

The USD Index is in many respects the linchpin which, after reversing, will throw most stocks and commodities into a tailspin. In fact, the USD Index has shown an exceptional inverse correlation with the stock market in recent times. The last peak occurred within two days of the stock market’s bottom on March 6th.

For additional charts on the major indexes and gold, you can visit Mr. Husebye's website at: http://www.kimhusebye.com/charts.html

Conversely, the US dollar’s imminent bottom should coincide closely with a top in the stock market.

Further evidence that the US Dollar Index is bottoming includes the following:

• Bearish sentiment has reach extraordinarily high levels – a contrarian indicator.
• Talk of eliminating the greenback as the world’s reserve currency is a strong testament to the widespread disdain for the dollar – a contrarian indicator.
• From an Elliott Wave perspective, the USD Index has traced out five-waves to the downside, indicating we are in the final stages of an ending pattern.
• US dollars are still considered a safe haven in times of crisis. When the next panic in assets occurs, there is no reason to expect people to change that belief.
• As is now widely known, a major short position currently exists in the US dollar, whereby speculators have borrowed the buck at almost zero cost to finance securities purchases. A rush to buy back those borrowed dollars will accelerate an expected dollar rally, as the short-sellers get squeezed.
• Finally, when magazine covers show pictures of the US dollar in tatters, you know it’s probably a safe bet to take the opposite side of that trade.
• An upside reversal will be confirmed with a break above 76.82.

My 12-month target for the USD Index is near 100 (Dollar Index at 75.48 at time of posting)

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why?

A: All Canadian stocks will decline as the bear market enters the next leg down; consequently, there are no buy recommendations at this time. When the selling kicks in more strongly, the better stocks to sell short will include those that rallied the most during the uptrend, such as commodity and financial stocks.

My 12-month target for the TSX Composite is below 5,000 (TSX at 11,503.43 at time of posting)

Q: With gold hitting new highs, what is your outlook on gold - is it a good time to get in or get out? Also, why do you think the gold stocks are underperforming when compared to gold bullion?

A: Gold’s rally has been corrective in nature, and is in an ending pattern. Now is the time to sell gold, especially while investor sentiment is at wildly optimistic levels. An exception applies to long term investors who wish to own gold bullion as a hedge against a potential future crisis in fiat (paper) money. For that purpose it is recommended to own actual gold bars or coins, not shares in gold companies.

Gold stocks often lead the price of bullion, so from time to time gold stocks will advance before the price of bullion increases, and vice versa. It may be that today’s relative weakness in gold shares is portending weakness in bullion.

My intermediate target price for gold is below US$700/oz (Gold at US$ 1,134.80/oz at time of posting)

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

A: Aside from selling stocks short, or putting on a synthetic short through inverse ETF’s, an excellent speculation at this time would be 30-year US Treasury Bonds. Each percentage point decline in yields from current levels would give a capital gain of 19%. On top of that you get a decent coupon of 3½ % to 4 %, as well as potential currency appreciation from owning the US dollar as investors look for safety.

My target for US long term bond yields is near 2% (30-year treasury yields at 4.375% at time of posting)

Thank you Mr. Husebye!

Interview with Craig Stanford of Trivest Wealth Counsel

2009-11-18T03:00:00.001-08:00

A short conversation with Craig Stanford of TriVest Wealth Counsel

Bio: Craig has 20 years of senior-level experience in the investment and finance sector. His prior Portfolio Manager and Investment Counsellor positions include the following: Partner / Director of Private Client Portfolio Management Mawer Investment Management; Managing Director / Portfolio Manager Cypress Capital Management; and, Managing Director / Portfolio Manager at Brickburn Asset Management. Craig also worked for Royal Bank Financial Group as a Senior Account Manager, Global Private Banking, providing offshore and domestic solutions to high net worth clients, trusts, foundations, and not-for-profits. In addition, he worked as a Trust and Investment Advisor for Royal Trust providing offshore and domestic portfolio management, custody, estate, and IBC formation services.

Craig is a Chartered Financial Analyst (CFA) Charterholder. He obtained a Master of Business Administration degree and a Bachelor of Science (Agriculture) degree from the University of Alberta. In addition, he holds and maintains Trust and Estate Practitioner (TEP) and Professional Agrologist (P.Ag.) designations and is a Certified Financial Planner (PFP).

Q: Mr. Stanford, in the face of the recent volatility in the stock market, a number of commentators are citing the over-valued nature of the markets based on the economic realities – what would be you’re view of the market (Canada and U.S) right now?

A: At TriVest, we see the equity markets starting to look a bit stretched and are finding it more challenging to find opportunities that are not fully valued. Overall, there are still a few individual securities that appear attractive from a bottom up basis, but as a whole the markets currently look fairly valued. The U.S. market, for example, is up 60% from its March lows and trading at approximately 16X forward earnings. This is not only above historical norms of nearly 15X, but is also predicated on a more than 30% growth incorporate earnings in 2010. We consider this to be tad optimistic considering the overall health of the US economy and the double digit (and climbing) unemployment.

Q: What is your near and long term outlook for the Canadian Dollar with respect to its fundamental value and its impact on the earnings of Canadian companies?

A: We believe the current strength of the CDN dollar is a more of a function of a weakening US dollar. In the short term, we think the CDN dollar could easily go to par. The U.S. government needs a low U.S. dollar to stimulate its economy and deal with its massive debt load. It was fairly clear from the recent OECD meeting that the U.S. intends to keep interest rates low and is (not so secretly) supporting a low dollar policy. This clearly hurts all of their trading partners and especially Canada. China is avoiding this pain by keeping its currency pegged, but is currently under a lot of pressure by the U.S. to allow its currency to appreciate. In regards to CDN corporate earnings, obviously the manufacturing business is hurting as the industry can no longer rely on a weaker dollar to offset poorer efficiency. It also doesn’t fair well for the energy business given cost structures are in CDN dollars and revenue in USD.

Longer term, it is always difficult to predict currency movements. We’ve never found anyone or any institution that can do it consistently or accurately. Ultimately, we think the U.S. dollar will appreciate when the current U.S. dollar carry-trade unwinds. There are currently huge net short positions in zero-cost U.S. Treasuries right now with offsetting long positions in higher yielding equities and commodities.

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can befinancials, energy stocks, technology, resources etc.) that you believe to be overboughtand due for a correction and one sector that you believe to be oversold and due for abounce and why?

A: We believe that the financial sector is fully valued, especially in the U.S. The next shoe to drop is likely defaults in the commercial mortgage area with U.S. $2 trillion of maturities over the next 15 months. A few large cracks are just starting to appear in the U.S. commercial property sector already, and it would not be prudent to believe Canada wouldn’t be impacted in some fashion. For example, despite the stronger positioning of the Canadian banks, many are trading near record levels reached in 2007.

When we screen for relative value, Utilities and Telecommunications are trading below historical valuations and have not participated to the same extent as some of the other sectors in the recent run up. On a bottom up basis, there are still some attractive stocks in the energy sector trading at reasonable cash flow multiples but it is very selective. As for example, we believe many of the gas-levered stocks to be trading at multiples greater than what is being implied by the forward curve for natural gas.

Q: With regard to risk management, which I see is one of your founding principles, how do you recommend investors approach managing their risk? Can you please elaborate on one or two methods utilised by TriVest in current times to 'protect and grow' assets?

A: At TriVest we utilize a three step process for stock selection. A formalized approach to risk management is included in each step. From a 30,000 foot view, we begin with a quantitative model that we have developed to screen the market for relative valuation and risk metrics that we deem important. We then follow this up with intensive fundamental research further screening our target opportunities by ranking of their management track record, the quality of their assets and/or business with a subsequent outlook for growth or sustainability of dividends, and lastly their overall relative value. To supplement our own research we also have considerable access to institutional equity research.

As a last and important step, we then take our equity model portfolio and apply an option overlay. This is our final level of risk control and can be tilted to match our views of an individual stock or the market in general. Options are a very powerful risk management tool that aren’t traditionally utilized by the Investment Counsellor community. As an example, you can buy a Put to hedge a particular exposure or implement a costless collar strategy (buy a Put and sell a Call) to set a floor and a ceiling on an investment.

We would not recommend that the individual investor utilize options unless they have some education in that area. There are publically traded ETFs that can be utilized to hedge a sector or market exposure. However, we would caution against the average investor utilizing double or triple leveraged ETFs as they can lose market tracking over a relatively short period of time.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

A: Two very different themes that we would recommend looking into further would be Telecoms and Energy. Telecoms are currently trading at low valuations and we do see good future growth prospects in the cellular area in Canada (the U.S. market would be a different story given a more competitive landscape). Long term, oil prices should rise as cheap conventional reserves continue to decline and demand from countries such as China and India continue to rise. Short term, oil prices could be quite volatile in both directions with issues such as the large U.S. carry-trade, fear of future inflation etc.

Thank You Mr. Stanford!

Interview with Travis Dowle of Vistra Capital

2009-11-17T05:00:00.001-08:00

With the S&P 500 and the Dow currently attempting to remain above key levels (Dow – 10,345 and S&P 500 – 1100), the widespread US Dollar weakness has caused Gold to surge to 1135/oz. While weakness in the US Dollar could have something to do with the news coming out of APEC indicating China’s failure to agree with U.S. demands of revaluing the Chinese Yuan, on the economic front, U.S. retail sales numbers from October came in at +1.4% versus expectations of +1.0%. These retail sales numbers seem to have failed to dampen the risk appetite of investors as stocks rose and the greenback fell.

For further clarity on the markets, I turned to Mr. Travis Dowle of Vistra Capital Management in Vancouver, BC, Canada.

Bio: Travis Dowle is the founder and President of Vistra Capital Management, an independent investment management firm located in Vancouver, Canada and the fund manager for the Vistra Fund. Mr. Dowle has also served as the Vice President, Portfolio Investments with Gibralt Capital Corporation and Second City Capital Partners – both Vancouver-based private equity groups – since July 2007.

Prior founding Vistra, and to joining Gibralt Capital and Second City Capital, Mr. Dowle was a portfolio manager for one of the world’s largest investment managers, HSBC Global Asset Management. While with HSBC he was the lead manager for the firm’s global equity strategy offered to Canadian high-net worth investors. Prior to that, Mr. Dowle held various investment management and research positions with HSBC and M.K. Wong & Associates.

Mr. Dowle has more than 13 years of experience in the investment industry, is a graduate of the University of Western Ontario and holds the professional designation of Chartered Financial Analyst (CFA). Mr. Dowle is also a past instructor for Stalla’s CFA exam preparation program covering equity valuation techniques and capital markets theory.

Vistra Capital Management is an investment management firm founded with the philosophy that an active, flexible and opportunistic approach to investing provides the best opportunity for generating positive investment returns across a variety of market environments. The Vistra Fund is a long/short fund focused on event-driven opportunities and special situations.

Q: Mr. Dowle, in the face of the recent volatility in the stock market, a number of commentators are citing the over-valued nature of the markets based on the economic realities – what would be you’re view of the market (U.S. and Canada) right now?

A: Looking at the broad market indices in North America, I think that we are in for a bumpy ride over the next few months. Since early March, three factors have spurred this rally: first, realization that all companies were not going bankrupt; second, a dramatic injection of liquidity and other stimulus measures; third, corporate earnings results surpassing low expectations due in large part to severe cost-cutting. Underpinning and related to all of this, has been a huge increase in investor risk-appetite, albeit off of very low levels. In order for the markets to continue an uninterrupted climb, many companies need to grow into their current valuations, and for that they need revenue growth – costs can only be cut so far. Broadly speaking, I think we are bound to see some disappointment. But, having said all of that, volatility creates opportunity and I’ll be on the hunt for opportunities as volatility increases.

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction (i.e apt to short) and one sector that you believe to be oversold and due for a bounce and why?

A: Looking at things from a short-term perspective, I’d have to say financials looks to be somewhat overbought here. The TSX Financials sector is up almost 90% since early March and the big banks in the index are trading at about 13x forward earnings – not inexpensive for a bank. While Canadian banks are healthier than their global peers and the credit environment has improved dramatically, I believe we’re going to see a slower growth economy coming out of this recession and financials will be challenged in such an environment.

It’s tougher to single out a sector that looks oversold right now with most being markedly higher over the year. I tend to look at things from a bottom-up perspective while being cognizant of the sector specific and macro risks. I’m still seeing interesting opportunities in the technology , energy and basic materials sectors, however based on recent performance, I certainly can’t say they are oversold. I really think you have to pick your spots with individual companies in this market.

Q: Given the tremendous rebound in Asian (particularly China and India) economies, what are your views on investing in stocks or themes related to these economies? Do you have any particular trades/themes you could elaborate on?

A: Asia is giant economic force that will undoubtedly continue to become more dominant over the next few decades. Like any economy it’s going to get ahead of itself at times and be subject to business cycles. There are a few different ways investors can take advantage of the growth in China, India and other Asian countries and emerging markets. Energy and basic materials are the obvious themes. I also like the agriculture theme. As huge populations in these emerging economies urbanize and per capita income rises, they will consume more of everything – from basic materials, to energy, to food and to water. Sprott Resource Corp (SCP) is an interesting way to play all of these themes in a single security – it invests directly and indirectly in natural resources, minerals, oil and gas, water, forestry and agriculture.

Q: Can you please highlight 1 stock/option or pairs trade that you think offers the best risk/reward potential moving forward and your reasons for liking it?

A: I think GLV Inc. (GLV/A:TSX) has attractive upside. GLV Inc. is a global provider of engineered processes and technologies designed for industrial, municipal and environmental applications. Said in English, they design and produce equipment used to treat municipal and industrial wastewater, and water used in industrial processes, and pulp preparation and sheet formation. Water scarcity and quality is going to be a big issue. By some reports almost half of water use for irrigation is lost to evaporation and waste – this is a serious problem with an exploding global population. As emerging market diets become more meat/protein-based, agricultural use for water increases. Over half of cities in China suffer from water shortages. Major developed cities lose water through leaking pipes due to old and aging infrastructure. GLV won’t solve all these issues itself, but it has strong growth prospects, trades at a reasonable valuation and it’s one of many companies that should benefit from the ‘water’ theme.

Q: Lastly, how about we play a game where you're only responses can be Buy, Sell or Hold to the things mentioned below:

A: Sure, but I’ll have to specify whether it’s a short-term call or a long-term one by specifying ‘S/T’ and ‘L/T’ respectively:

Gold: Buy (S/T)

Base Metals: Hold

Canadian Dollar: Hold

Agricultural Commodities: Buy (L/T)

Oil: Hold

Natural Gas: Buy

TSX 60 (XIU): Sell (S/T)

S&P 500: Sell (S/T)

Clean/Alternative Energy: Sell (S/T)

Canadian Real Estate: Buy (L/T)

For real estate it, of course, depends on location, location, location. For the rest of the asset classes it’s all about price, price, price. The price you pay eventually determines your return. Happy investing!

Thank You Mr. Dowle!

Interview with Gordon Currie of Blackmont Capital

2009-11-16T07:08:00.001-08:00

A conversation with Gordon Currie of Blackmont Capital

The most recent U.S. Department of Energy’s weekly report paints a sorry state of U.S petroleum demand, with primary weakness coming from the diesel category. The increase in heating oil inventories in the all important PADD I complex is a further drag on the entire oil sector. Crude oil futures were down on Friday, November 13 as NYMEX light sweet crude for December delivery fell $0.59 to $76.35 per barrel. What is most probably a result of the higher than anticipated U.S. inventory levels, Canadian natural gas spot prices fell dramatically by $0.85 to $2.42 per Mcf. However, U.S. natural gas futures were slightly higher Friday, despite statistics revealing a build of 25 Bcf in inventories, which was ahead of median expectations for 20 Bcf, and brought overall storage levels to 3,813 Bcf. Cash prices at the Henry Hub in Louisiana fell $0.79 to $2.44 per Mmbtu while NYMEX Henry Hub for December delivery actually increased, by $0.022 to $4.392 per Mmbtu.

To paint a clearer picture of the energy sector, I had the opportunity to interview oil and gas analyst Gordon Currie of Blackmont Capital. The following is a transcript of our interview.

Bio: Mr. Currie is a 29-year veteran of the petroleum and securities industries. He has worked both sides of the oil and gas industry: as an analyst and an executive. He joins us most recently from his work as an Oil & Gas Analyst with Wolverton Securities. His research insights are infused by his experience as IR Manager of NAL Oil & Gas Trust and President of Easton Drilling Fund. Mr. Currie holds the Chartered Financial Analyst (CFA) designation.

Q: Given the widespread pessimism regarding natural gas and the glut in inventory, what are your thoughts going forward for this commodity?

A: I am in the camp that believes that natural gas supplies will be ample for several years to come although there is an argument to be made that natural declines in production combined with a low level of drilling activity will bring supply and demand back into balance quickly. Most of the gas producers subscribe to the latter theory. Investors also seem to be expecting gas prices to improve next year, judging by the rally in stock prices after Labour Day. Now it is only November but spot prices here in Alberta are still mired in the $3.50/mcf range and forward prices on NYMEX are below $5/mcf thru the first quarter of next year. The initial euphoria about a rebound in gas prices seems to be waning.

Q: With crude oil hovering at approximately $80/barrel, do you think these price levels are sustainable for the next 1-2 years, especially in light of the IEA saying that they only expect a marginal increases of 1.5% per annum in oil demand between 2007 and 2030 in their most recent world energy outlook, why or why not?

A: Actually I think 1.5% annual growth in demand is pretty good, and I do think prices can stay in the $80/bbl range. However I don't see prices rising to $100/bbl any time soon, as OPEC still has sufficient spare capacity to supply several years worth of growth in demand, and countries like Iraq and Iran are opening up huge fields to development by foreign multi-nationals.

Q: With the oil/gas ratio sitting at approximately 20 and the average over the last 2 years being around the 12 to 13 mark, would you short oil at the moment or go long natural gas?

A: No, I concur with the International Energy Agency view that prices have become de-linked. Until natural gas can be widely substituted for oil as a transportation fuel, as Boone Pickens is advocating, that ratio will continue to fluctuate.

Q: What is your outlook for M&A activity in the energy sector? Do you have any plays (as in the bakken, montney, cardium etc.) or particular stocks that may be particularly susceptible to M&A activity?

A: It is difficult to do deals in periods of really low commodity prices and really high commodity prices, because buyers and sellers have different expectations about takeover values. And in periods of low prices there are added 'social' issues - some people are going to be put out or work. Crescent Point will continue to hoover up Bakken producers (if there are any left) but I don't really see play types driving M&A.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

The stocks that I cover are intermediate sized companies and mainly gas-weighted, so given my view on natural gas supply, it is difficult to recommend any of them. My favourite is NuVista Energy because it is typically the lowest cost producer and therefore best able to withstand a downturn in gas prices. It is also and acquire-and-exploit company so when gas prices are down they can buy assets cheap, and when gas prices are high they generate lots of cash flow.

Thank you Mr. Currie!

Don Coxe Basic Points November 2009

2009-11-14T18:43:00.000-08:00

Don Coxe Basic Points November 2009 - The Power of Zero

To read/download Mr. Don Coxe's November 2009 Edition of Basic Points Click Here

Props: ZeroHedge

BMO CM Basic Points Nov 2009

Interview with Allan Ross of Ross Smith Energy Group (RSEG)

2009-11-12T15:05:00.000-08:00

A short conversation with Allan Ross, Chief Executive Officer of Ross Smith Energy Group (RSEG)

Bio: Allan graduated from the University of Western Ontario with an MBA in 1979 and obtained his CMA designation in 1981. After moving to Calgary , Allan spent two years with Gulf in their economics and planning department before joining Burns Fry in the Corporate Finance group. After two years in this capacity, Allan moved to retail sales with Burns Fry in 1985 and then moved to Peters & Co. Limited a year later where he spent twelve years working in institutional sales, covering Toronto and Asia. Allan is one of the founding partners of the Ross Smith Energy Group.

Q: Mr. Ross, Given the widespread pessimism regarding natural gas and the glut in inventory, what are your thoughts going forward for this commodity?

A: Investors should remember that natural gas is a commodity and the best cure for low prices is low prices. The natural gas sector is currently experiencing cap-ex cutbacks, production shut-ins and even the service stocks are suffering. Natural gas has a shorter reserve life than oil and the supply/demand scenario can change very quickly. Right now, there is a great amount of pessimism that has already been discounted into the price and in my opinion, it makes economic sense for natural gas prices to be in the $6-9/mcf range. With regards to M&A activity in the natural gas sector, if prices continue to remain at current levels for the next year or so, natural gas producers will be forced to engage in some deal making at the corporate level.

Q: With crude oil hovering at approximately $80/barrel, do you think these price levels are sustainable for the next 1-2 years, especially in light of the IEA saying that they only expect a marginal increases of 1.5% per annum in oil demand between 2007 and 2030 in their most recent world energy outlook, why or why not?

A: I have a tough time agreeing with the International Energy Agency’s long term forecast for global oil demand (which concludes that Global oil demand is expected to advance 1 percent a year to 105 million barrels a day by 2030 from 85 million barrels a day in 2008). We are not discovering any massive new oil fields and the ones being discovered offshore Brazil will take a very long time to come on-stream as currently there is no technology that is able to accomplish this feat. If I was a trader, I would probably be selling oil right now as oil is probably overvalued here (the world is awash in oil at these prices); however, I expect the price of oil to be higher this time next year With regards to what might happen to oil prices if governments around the world were to withdraw their stimulus packages by this time next year, I don’t believe that the stimulus packages are having much impact on oil prices, perhaps later when people feel more comfortable and start spending again you might see a lift in demand.. The big demand driver is Chinese activity.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

A: In terms of themes, in the energy space, I have been keeping an eye on the Marcellus shale plays for close to three years. The Marcellus is prolific because it has 199 TCF of remaining recoverable reserves, covers 5,000,000 acres, has 62,000 locations, and is close to market (US NE).

Another theme playing out right now is that the world hates the oil sands. However, the world needs the oil sands. If someone were to throw a monkey wrench into this equation and some new technology were to be discovered that makes the extraction of oil sands less intrusive, this could change the perception of the sector which in turn could be a boon for companies involved in the oil sands. I am not aware of anyone who is specifically working on technology for cleaner oil sands extraction process but given the prize there have to be lots!

Thank you Mr. Ross!

Interview with Robert Cooper, Oil and Gas Analyst at Acumen Capital

2009-11-11T21:29:00.001-08:00

A short conversation with Robert Cooper, CFA - Oil and Gas Analyst at Acumen Capital

Bio: Robert Cooper joined Acumen in August 2008 as an Oil & Gas Analyst. Acumen Capital Finance Partners (http://www.acumencapital.com/) Limited is an independent, full service investment dealer based in Calgary, Alberta, Canada.Prior to joining Acumen Capital , Robert spent several years in equity research with two other investment banking firms covering the junior oil and gas industry in addition to several years with a leading mid-market merchant banking firm. Prior to that, Mr. Cooper spent two years with a leading commodity trading organization as a commodity trader. Robert has a finance degree from the University of Regina, is a CFA charterholder and is Vice President of the Calgary CFA Society.

Q: Given the widespread pessimism regarding natural gas and the glut in inventory, what are your thoughts going forward for this commodity?

A: The night is always darkest before dawn and I think in early September we reached dawn with gas bottoming out at cyclical lows. I tend to be a contrarian by nature so when everyone is stampeding for the exit I take note of it but try to find out what is driving the group-think. Low prices for natural gas have been driven by two main reasons. First, the rapid deterioration in U.S. industrial demand and second, supply increases primarily driven by the U.S. shale plays (i.e. Haynesville, Marcellus, et al). With the massive stimulus percolating through the U.S. economy, I think there is a chance that industrial demand will perk up as the U.S. economy gathers steam. Second, generally the best cure for low prices are low prices. Drilling levels have been way down and this will inevitably lead to a supply response. So overall, I think we could see upside from here although in the short term gas will be highly correlated to the amount of cold weather that hits the major consuming regions in the U.S. Longer term, policy makers are eventually going to realize that natural gas should be the preferred fuel type going forward - it is plentiful, cheap, clean and doesn't involve sending billions of dollars overseas to questionable regimes who produce oil.

Q: With crude oil hovering at approximately $80/barrel, do you think these price levels are sustainable for the next 1-2 years, especially in light of the IEA saying that they only expect a marginal increases of 1.5% per annum in oil demand between 2007 and 2030 in their most recent world energy outlook, why or why not?

A: Generally, yes I agree. Oil appears to be trading at or about the marginal cost of new supply. We have seen comments coming from some of the supermajors, for instance, that for new oil sands projects to proceed an oil price of around $80/bbl is required in order to earn an appropriate rate of return. What folks fail to appreciate sometimes is that the world is awash in expensive sources of oil. The easy to produce oil has been produced. Therefore, in order to stimulate new supply, prices have to be strong and remain strong. Extreme volatility doesn't do anybody any good - it adds risk to major projects on the corporate side and wreaks havoc on the demand side (consumers). What I will say, however, is that oil is now much more dependent on emerging market economic growth than OECD growth and that is a big shift from years past.

Q: With the oil/gas ratio sitting at approximately 20 and the average over the last 2 years being around the 12 to 13 mark, would you short oil at the moment or go long natural gas?

A: I like the risk reward profile of natural gas better at the moment but that doesn't mean i would short oil. It takes a brave soul to short oil when you are one terrorist attack or geopolitical event away from a steep change in price. Some smarter folks than I may do that but I prefer to sleep at night.

Q: What is your outlook for M&A activity in the energy sector? Do you have any plays (as in the bakken, montney, cardium etc.) or particular stocks that may be particularly susceptible to M&A activity?

A: The short answer to that question is that I want to own energy stocks that larger energy companies want to own. And in my opinion, larger companies want to own assets in which they have a high degree of working interest, have low operating costs through controlled infrastructure/facilities, operate, and assets that have scale and scope (through increased capital intensity, improvements in technology, etc.) Finding names with those attributes can often lead to potential M&A targets. I try to find these companies and own them because they are good investments that may get merged out, not solely because they are M&A targets.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

[Note: Mr. Cooper is restricted from providing non-clients specific stock picks but he was kind enough to provide us with the following insight]

A: I don't have a specific stock pick but I like resource plays. That speaks to the scale and scope point i made earlier. Repeatability of a specific play type is very important and is worth more to investors because it is predictable. As a general rule, predictability is usually worth more than unpredictable results.

Thank You Mr. Cooper!

Interview with Ken Norquay, CMT of CastleMoore

2009-11-06T13:13:00.000-08:00

A short conversation with Ken Norquay, CMT of CastleMoore Inc., a portfolio management company.

Bio: Ken is an officer and director and chief investment strategist of CastleMoore Inc., a portfolio management company.

Ken is a graduate of McMaster University in Hamilton Ontario and has qualified as a Chartered Market Technician as well as attaining a number of industry specific qualifications in the trading of Futures and Options.

After serving three years in the Canadian Armed Forces, he entered the financial services industry as a mortgage officer with a large Canadian trust company. Ken entered the investment business and became the manager of the Hamilton and St. Catherines offices of Merrill Lynch Canada before becoming a founding partner and major shareholder of Market Street Investment House, a retail investment dealer. He sold his firm in the first quarter of 2000, realizing his life goal of selling at the top. Ken then became a director of Quest Capital Group, a day trading investment dealer. He subsequently established The Glen Nova Division of The Glen Ardith Company Ltd., an investment counseling firm.

Ken served as the chairman of the Hamilton Investment Dealer's Association and member of the IDA's Ontario District Council, in the late 1970's. He also served on the Board of Directors of the Canadian Society of Technical Analysts and as its President in the early 1990's.

Q: Mr. Norquay, in the face of the recent volatility in the stock market, a number of elliot wave practitioners are calling the recent rally from the lows a bear market rally and that we are now in a secular downtrend, does your analysis concur with this view?

A. Almost. My heart tells me the Elliott Wavers are right. But my best technical model has not yet given a sell signal for the stock market.

Q: What is your near and long term outlook for the Canadian Dollar and the US Dollar? While the general viewpoint of most market commentators calls for a decline in the US Dollar, I have heard a few technical analysts (primarily the elliot wave practitioners again) call for a secular uptrend in the UD Dollar, once again is do you or do you not concur with this view and why?

A: Our view is: CD$ down, US$ up. This time our models agree with the Elliot Wavers.

Q: What are your thoughts on the energy sector that is crude oil and natural gas in the next few months?

A: I have no opinion. Since the big wash out in crude from July 08 to Feb 09, this year’s action looks like a base and a break out. Oil looks higher. But I don’t trust it. Gas is crazy. Wild and volatile. I do not feel confident in the energy sector.

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why?

A: Overbought = Financials, Oversold = Nil

Q: Lastly, can you please highlight 1 stock that you think offers the best technicals moving forward and your reasons for liking it?

A: Deere & Company, usually known by its brand name John Deere (NYSE: DE) looks like a massive head and shoulders bottom.

Thank You Mr. Norquay!

Interview with Constantine Lycos of Lycos Asset Management

2009-11-04T09:56:00.001-08:00

An interview with Constantine Lycos, President of Lycos Asset Management, a registered investment management firm based in Vancouver, Canada

Bio: Prior to founding Lycos Asset Management , Constantine Lycos was a partner, portfolio manager, investment advisor, compliance officer and head of the investment committee at Chartwell Asset Management, where he was the lead manager of the Magna hedge funds and also managed portfolios of high net worth individuals. Before Chartwell he was employed by CIBC World Markets as a Research Associate. Attached to the Private Client Division of CIBC World Markets, he conducted research focused on individual investors' needs and constraints. That research was primarily on equity investments but included asset allocation, hedging and other more sophisticated strategies. Mr. Lycos graduated top of his class in Mathematics from the University of London (B.Sc.), and earned a master's degree in Mathematical Finance from Oxford University. At Oxford he conducted research under world-renowned derivatives specialists Drs. S. Howison and P. Willmott on stock market volatility. Mr. Lycos has completed most courses offered by the Canadian Securities Institute, including the Options Licensing, Futures Licensing, Technical Analysis, Options Strategies and Financial Markets Risk Management courses. He holds the Canadian Investment Manager (CIM) and Derivatives Market Specialist (DMS) designations as well as that of the Chartered Financial Analyst (CFA), the highest designation for investment professionals. Mr. Lycos is a fully registered portfolio manager (meaning he is licensed to advise on any kind of investment (stocks, bonds, GICs, commodities, futures, options, etc), unlike some "advisors" or financial planners that can only advise on mutual funds or insurance products). He is also the fund manager of the Lycos Canadian Hedge Funds. He is a member of the CFA Institute (formerly the Association for Investment Management and Research), CFA Vancouver (formerly the Vancouver Society of Financial Analysts.) and the Social Investment Organization, the Canadian association for socially responsible investment.

Q: Mr. Lycos, in the face of the recent volatility in the stock market, a number of commentators are citing the over-valued nature of the markets based on the economic realities – what would be you’re view of the market right now?

A: Since you started your question with talking about volatility, let’s start by asking ourselves, does stock market volatility (a rather technical term) have anything to do with concepts such as fair value, over-valued stocks and under-valued stocks? The answer is not necessarily an obvious one, but yes, stock market volatility can have an impact on the fair value of stocks: the higher the volatility, the higher the rate of return investors require to own stocks, i.e. the higher the discount rate, and the lower the fair value for stocks. Is volatility the most important determinant of fair value? Obviously not. Stocks are all about profits or earnings, future earnings to be precise. Let’s examine the S&P 500 Index. It is a good proxy for the world stock market as it is made up of large global corporations. On 2nd November 2009, I calculated the book value of the S&P 500 to be approximately 486 index points and trailing 2 quarter plus estimated next 2 quarter earnings to be about 61 points, implying a return on equity (ROE) of about 12.5%. (The index was at 1042 when I performed the calculation.) It’s very tempting to apply a something like a 15x PE multiple on these earnings to come up with a fair value number of 915, but that would be wrong. We seem to be coming out of a cyclical bottom so the earnings are likely to improve a bit faster than normal, so we must rely on the concept of “normalized earnings”, meaning using a projected average ROE number over several years out, rather than just a couple of quarters, of let’s say 15%. 15% of 500 is 73, which is a reasonable “normalized earnings” number to use. Again, an average P/E multiple of about 15 could be used to come up with a fair value estimate for the index of about 1100. At 1042 the market doesn’t look overvalued. However, there are a number of things that bother me with this analysis. I am not convinced that the economic recovery will as strong as one might expect given the magnitude of the decline primarily due to the decreased leverage in the economy, when compared to levels prior to the financial crisis. So if appetite for borrowing doesn’t come back for a number of years perhaps the projected average ROE is lower in the future making the market too expensive or over-valued. Another thing that bothers me is that about half of the book value of the S&P 500 is made up of intangible assets such as goodwill. Goodwill doesn’t deserve a multiple.

Q: What is your near and long term outlook for the Canadian Dollar with respect to its fundamental value and its impact on the Canadian economy?

A: CAD is a currency used by speculators (as well as some other currencies such as AUD and NZD) as a vehicle of choice on betting on the global growth, reflation story. CAD almost never trades on fundamentals, i.e. things such as Purchasing Power Parity (PPP), meaning fair value based on what a basket of goods should cost in Canada versus in other countries, so it almost a waste of time even bothering to calculate the fair value for CAD. As far as making a call on CAD, the call would be pretty much the same as the call for oil and commodities in general, a “game” which I don’t play. Speculating on commodities and currencies is zero-sum game, better left to fools and “sharks”. I am neither.

Q: With the US GDP data coming in better than expected last week and today’s ISM Index rising more than expected in addition to positive construction spending and pending home sales data, what is your read on the US economy going forward and its place in the global economic landscape?

A: I tend to be a bottom up stock investor, not paying too much attention to the economy as a whole. A great bottom up investor, Peter Lynch, said something like “If all the economists in the world were laid end to end, it wouldn't be a bad thing.” The US economy is in trouble now but long term it’s probably about the best place in the world to bet on. Why? It possesses the basic necessary ingredients that are required for optimal wealth creation, first identified by Adam Smith: economic and political freedom for its citizens, respect for property rights and the rule of low. Unfortunately since 9/11 some of the freedoms have disappeared and also the respect for civil rights by governments has gone down a bit, so things could be better, but on a relative basis it is still about the best place in the world. Canada is also pretty good. By the way, all other factors, such as availability of resources (be it human like in China, or natural, like in Russia, Brazil and Canada) are secondary in the quest for wealth creation. Innovation, new ideas, new technologies create wealth and the economies that foster the right conditions to promote innovation will do the best in the long run.

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why?

A: Yes, cyclicals outperform when markets go up, they underperform when they go down, etc. Deep cyclicals are too hard to value – you can’t predict their earnings, can’t put a multiple on them, can’t analyze them. I do not take positions in things I can’t value, neither short nor long. But tied to question number one, if the market is overvalued and corrects, then the cyclicals will correct more. The market is not overvalued and it is not undervalued either. So large moves in either direction are not likely to happen based on fundamentals.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

A: The world needs energy and ideally clean energy. We have been talking about hybrid cars and now plug in electric cars for a while. If we all switched to driving plug in electric cars tomorrow all we’ll be doing is substituting burning refined oil (gasoline and diesel) with burning coal to produce electricity. Yes, electric cars are more efficient but burning more coal is not a good idea. Hydro, wind and solar are good but we don’t have anywhere near enough capacity from these sources. As much as I don’t like the only viable alternative is nuclear. A good pure play nuclear electric utility is Exelon (EXC). Stable earnings, a safe bet on growth, a good undervalued stock. It’s fair value is about $68 and will probably get there in 12 to 18 months and it’s only trading at about $47 now. Go long the stock, sell the $65 calls and buy the $35 puts, to have protection in case the unthinkable happens.

Thank You Mr. Lycos!

Interview with Murray Leith, VP and Director of Research at Odlum Brown

2009-11-02T22:03:00.000-08:00

An interview with Murray Leith, Vice President and Director of Investment Research at Odlum Brown

Bio: Murray Leith (BComm, CFA), has over 20 years of experience as an Investment Analyst. He is a Vice President and Director of the Firm, as well as a member of Odlum Brown's Executive and Management Committees. He joined Odlum Brown in June 1994 and has managed the Odlum Brown Research Department since that time.

Mr. Leith formulates the Firm's economic outlook and equity investment strategy, in addition to covering individual companies, primarily in the Financial Services sector. Moreover, Mr. Leith and his team of Analysts established the Odlum Brown Model Portfolio over 14 years ago. This all-equity portfolio showcases how we believe individual investment recommendations should be used within the context of a client portfolio. The Model also provides a basis with which to measure the quality of our advice and the effectiveness of our disciplined investment strategy. Since inception, the Model's returns have outperformed the benchmark S&P/TSX Total Return Index by a considerable margin.

Q: Mr. Leith, in the face of the recent volatility in the stock market, a number of commentators are citing the over-valued nature of the markets based on the economic realities – what would be you’re view of the market right now?

A: It's the market of stocks that matters and not the stock market. From a bottom up fundamental perspective there are a lot of attractively priced stocks.

Q: What is your near and long term outlook for the Canadian Dollar with respect to its fundamental value and its impact on the Canadian economy?

A: The "fundamental" value of the dollar is purchasing power parity, which is around 85 cents. The dollar can stay out of over or undervalued for extended periods of time. Conditions are ripe for our dollar to remain overvalued. The long term implications are negative for the Canadian economy. Recently, the Canadian economy is doing poorly, in large part due to the exchange rate.

Q: With the US GDP data coming in better than expected last week and today’s ISM Index rising more than expected in addition to positive construction spending and pending home sales data, what is your read on the US economy going forward and its place in the global economic landscape?

A: I believe the US and global economy is in the very early stages of recovery. The US recovery will like surprise on the upside over the next few quarters, as there is a ton of stimulus in the system.

Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why?

A: The resource stocks were over bought and are therefore experiencing a correction. The Utility stocks have been neglected and are due for a bounce.

Q: Lastly, can you please highlight 1 stock/theme that you think offers the best value moving forward and your reasons for liking it?

A: The best value is in large US stocks, particularly in the Consumer Staples and Health Care sectors. JNJ, KO and WMT are a few examples. A decade ago Canadians fell over themselves getting money out of the country. The results were horrible. Today, they do the opposite and will likely be disappointed again. The lesson from history is to swim against the consensus, because conventional wisdom is often wrong.

Thank You Mr. Leith!

Canadian Market Timer - November 1, 2009

2009-11-01T20:33:00.000-08:00

The embedded report is one I compiled over the weekend to give myself some clarity on the current state of the Canadian equity market.

Canada Market Timer1

Trade For iShares Canadian S&P/TSX Capped Financials Index Fund (XFN)

2009-09-24T20:45:00.000-07:00

As the iShares Canadian S&P/TSX Capped Financials Index Fund (XFN) closed down $0.40 (1.76%) to end the day at $22.29, one large investor purchased 5,025 March 2010 20 calls for $2.85 and 5,035 March 2010 20 puts for $0.93. Volume was through the roof, i.e. several times both strike prices according to the Montreal Exchange's Most Active Options Report.

My quibble with the Montreal Exchange's Most Active Options Report is that while it reports on the volume of the trade it doesnt exactly outline which direction the trade was placed in, i.e. whether the investor bought or sold the calls/puts.

Lets assume, the investor purchased both the calls and puts in the aforementioned transaction, this trade would be known as a Long Straddle.

A long straddle consists of taking a long postion in both a call and a put option on the same asset with the same strike price and expiry date. By doing so, the investor sets lower and upper break evem points for this position. This is a useful strategy when one one expects a highly favourable or unfavourable move in the price of the underlying stock but is not sure of the direction of the move.

With the March 2010 20 calls trading at $2.85, the investor would have had to pony up $1,432,125 for 5,025 calls. With the 5,035 puts being worth $0.93, the investor's out of pocket costs for the puts would have equalled $468,255 bringing the investor's net out of pocket expenses to $1,900,380 ($1,432,125 + $468,255) for a net debit of $3.78 ($2.85 + $0.93).

His lower break even corresponds to the strike price minus the total option premium ($20.00-$3.78) = $16.22; his upper break even corresponds to the strike price plus the total option premium ($20.00+$3.78)= $23.78. This means that the trade will be profitable as long as the price of the stock moves outside this straddle/threshold.

The downside risk of this strategy is known and capped at $1,900,380. If the stock remains inside the straddle/threshold, the investor may lose upto the total premium paid for the options. Conversely, if the stock moves outside the straddle/threshold in any direction, the investor can excercise either the call or the put (depending on the direction of the stock move) or even simply sell the favourable option in the market.

Now, lets assume the investor sold both the calls and puts in the aforementioned transaction, this trade would be known as a Short Straddle.

As a result of selling the March 2010 20 calls trading at $2.85 and the March 2010 20 puts trading at $0.93, the investor would pocket $1,900,380 ($1,432,125 + $468,255) for a net debit of $3.78 ($2.85 + $0.93).

This money is his reward for taking on the risk of a large move in the stock’s price, either up or down. If the stock drops, he will be assigned on his short put position and will be obliged to buy 503,500 shares at $20. If the stock rises, he will be assigned on his short call position and be obliged to sell 502,500 shares he doesn’t own at $20. His break-even point on the downside is $16.22 and his break-even point on the upside is $23.78. This means that the trade will be profitable as long as the price of the stock stays within this range.

Should XFN's stock price close below $16.22, At expiration, the investor will be assigned on his short put position and will be obliged to purchase 503,500 shares of XFN at $20. He will then sell them at a price below $16.22, thereby incurring a loss greater than $3.78 – the amount he initially received for taking on the position.

Should XFN's stock price close between $16.22 and $20.00, the investor would be assigned on his March 20.00 puts and would thereby be obliged to purchase 503,500 shares of XFN at $40.00. He will then sell these shares at the market’s price. Given that the shares are trading above $16.22, he will lose less than the initial amount taken in when he established the position,
thereby making a profit.

Should XFN's stock price close between $20.00 and $23.78, at expiration the investor would be assigned on his March 20.00 calls and would thereby be obliged to sell 502,500 shares of XFN at $20.00. To obtain these shares, he would have to purchase these shares at the market’s price. Given that the shares are trading below $23.78, he will lose less than the initial amount taken in when he established the position, thereby making a profit.

Lastly, should XFN's stock price close above $23.78, at expiration the investor would be assigned on his short call position and will be obliged to sell 502,500 shares of XFN at $20. To obtain these shares, he would have to purchase these shares at the market’s price, thereby incurring a loss greater than $3.78 – the amount he initially received for taking on the position.

Is It Time To Short The S&P 500?

2009-09-18T08:12:00.000-07:00

The ratio of the S&P 500 spot price to its 200 day SMA is sitting at 1.20 currently and the last time it was this high was way back in May 1983. Back then, the index was sitting -2.5% lower one week later.

Vertex One Asset Management Set To Launch 3 Mutual Funds

2009-09-17T21:38:00.000-07:00

Vertex One, a Vancouver based discretionary asset manager with approximately $759 million in assets is gearing up for the launch of 3 new mutual funds according to filings with SEDAR. The company is planning to launch the Vertex Value Fund, the Vertex Enhanced Income Fund and the Vertex Growth Fund, all of which would require a minimum initial investment of $15,000 Canadian in each Fund.

As per the filed prospectus, the Vertex Value Fund would aim to provide long term capital growth by investing in companies the team deems to be priced at attractive levels relative to the market, their competitors and their growth rates. The team cautions that due to the ‘value’ aspect of the fund, the holdings of the fund would often include companies that are out of favour. Companies with annuity like cash flows, strong balance sheets and high dividend yields will be given the greatest weighting as per the prospectus. The team intends to invest in 25 to 30 North American equities and aims to keep the portfolio turnover low. The fund will also be able trade options on a non leveraged basis but there will be no short selling. The Vertex Value Fund class B units will have a 2% management fee and the class F units will have a 1% management fee. Furthermore, 20% of the amount by which the fund outperforms its benchmark (50% S&P 500 Total Return Index and 50% S&P/TSX Composite Total Return Index) will be charged in performance fees provided that the net asset value per unit for each class of units exceeds the high-water mark (the highest daily Net Asset Value per Unit for each Class of Units from time to time establishes a high-water mark for each Class of Units). Investors seeking capital gains over the long term, with a medium to high tolerance for risk would be best suited for the Vertex Value Fund.

The mandate of the Vertex Enhanced Income Fund is to preserve capital while providing high income by investing primarily in Canadian and United States bonds (government as well as corporate) and debentures. The fund will also invest in income securities that the team deems undervalued but no more than 25% of the fund can be invested in common high yield equities and no more than 25% of the fund can be invested in preferred shares. Additionally, no more than 50% of the Vertex Enhanced Income Fund will be exposed to foreign currencies and there will be no short selling in the fund. Once again, trading options will be permitted in the fund. The Vertex Enhanced Income Fund class B units will have a 1.5% management fee and the class F units will have a 0.75% fee. Furthermore, 20% of the amount by which the fund outperforms its benchmark (20% S&P/TSX Preferred Share Total Return Index, 20% S&P/TSX Composite Total Return Index and 60% Scotia McLeod Mid Term Bond Index) will be charged in performance fees provided that the net asset value per unit for each class of units exceeds the high-water mark (the highest daily Net Asset Value per Unit for each Class of Units from time to time establishes a high-water mark for each Class of Units). Investors seeking interest income as well as moderate capital growth over the long term with a medium tolerance of risk would be best suited for the Vertex Enhanced Income Fund.

The Vertex Growth Fund’s primary objective is to achieve long-term capital growth by investing in growth-oriented equities. The fund will invest in equities and equity related secuirites of North American as well as international companies. The strategy will include seeking inefficiently priced companies backed by strong management teams with solid business models that have the potential to benefit from both industry and macro-economic trends. This fund, unlike the previous two, will have the ability to invest in derivative instruments and exchange traded funds to hedge currency exposure. The fund will also have the freedom to trade in securities of distressed issues, participate in special warrant arbitrage situations by purchasing special warrant securities of an issuer while selling short the securities which underlie the special warrants, participate in merger and convertible arbitrage situations and trade in securities of issuers that may be involved in a restructuring. The Vertex Growth Fund will have the ability to employ leverage and it may invest in fixed income securities including preferreds, convertibles, corporate and sovereign debt securities. Lastly, while short selling may be employed in the fund the aggregate market value of all securities sold short cannot exceed 20% of the fund’s total net assets on a daily marked-to market basis. The Vertex Growth Fund class B units will have a 2% management fee and the class F units will have a 1% management fee. Furthermore, 20% of the amount by which the fund outperforms its benchmark (50% S&P 500 Total Return Index and 50% S&P/TSX Composite Total Return Index) will be charged in performance fees provided that the net asset value per unit for each class of units exceeds the high-water mark (the highest daily Net Asset Value per Unit for each Class of Units from time to time establishes a high-water mark for each Class of Units). Investors seeking capital gains over the long term, with a medium to high tolerance for risk would be best suited for the Vertex Growth Fund.

The investment team at Vertex One consists of founder and director John Thiessen, founder and director Matthew Wood, founder and director Jeffrey McCord and portfolio manager Tim Logie. The flagship Vertex hedge fund, which dates back to 1998, is a multi strategy fund, focussed on event driven strategies with a long bias. The fund seeks to garner absolute returns of 10% plus with a Beta of 0.5 or less to market indices over the longer term. The fund has definitely succeeded in maintaining a Beta of 0.3991 over its tenure whilst recording a 18.20% compounded rate of return and a cumulative return of 593.6% since 1998. The Vertex fund has had 69.78% positive months and 30.22 % negative months. Thiessen and his team have managed to record an annualized alpha (a measure of a portfolio's return in excess of the market return, after both have been adjusted for risk) of 20.12% relative to the S&P 500 and 11.36% relative to the Hennessee Opportunistic Index. While the fund did falter to the tune of -40.25% in 2008 it has returned to its winning ways by gaining 54.04% till date.

Having proved their metal in the hedge fund world, it should be interesting to watch how Thiessen and his team manoeuvre the more constrictive and publicly scrutinized world of mutual funds.

Put Buying on the iShares™ CDN LargeCap 60 Index Fund

2009-09-17T09:36:00.000-07:00

As north American equities take a beating, 2 big trades in the XIU - iShares™ CDN LargeCap 60 Index Fund indicate that some very large institutional type investors think that the S&P®/TSX® 60 index is in for a rough time in the weeks ahead.

The Montreal Exchange Most Active Options Screener detected the purchase of 62,500 October 16 and 62,500 October 16.5 puts on the XIU - iShares™ CDN LargeCap 60 Index Fund which seeks to replicate the performance of the S&P®/TSX® 60 index. The Index is comprised of 60 of the largest (by market capitalization) and most liquid securities listed on the TSX. The put buying would seem to indicate that someone is betting or at the very least buying insurance in the instance that the SP®/TSX® 60 index will have lost between 6-8% of its value in the month ahead.

Options Bullish on Talisman Energy (TLM: TSX)

2009-09-16T22:58:00.000-07:00

The Montreal Exchange Most Active Options scanner detected the purchase of 9,901 September 17 calls for about $2.50. In addition, another 9,632 October 19 calls were purchased for about $1.00.

Don Coxe Basic Points September 2009

2009-09-15T17:59:00.001-07:00

Don Coxe Basic Points September 2009 - Dem Blues

To read/download Mr. Don Coxe's September 2009 Edition of Basic Points Click Here

BMO CM Basic Points Sept 2009

Don Coxe Basic Points June 2009

2009-06-11T08:22:00.001-07:00

Don Coxe Basic Points June 2009 - Who Will Really Lead the Global Rescue?

To read/download Mr. Don Coxe's June 2009 Edition of Basic Points Click Here

Basic Points June 2009 BMO CM Basic Points June 2009 BMO CM dpbasic

Publish at Scribd or explore others: Finance Non-fiction money black

Why Gold and Silver Bullion Should Be In Your Portfolio

2009-05-15T23:17:00.001-07:00

In it's annual report, which was filed on May 4, 2009 Sprott Resource Corp. (SCP: TSX) CEO Kevin Bambrough outlined his rationale for purchasing 40,475 ounces of gold bullion at a cost of C$968/oz and 852,478 ounces of silver bullion at a cost of C$12.75/oz in Q4/08.

Bambrough writes:

"The following actions of governments around the world and the state of the global fi nancial system support this approach:

• A large number of fi nancial institutions around the world are insolvent. The extent of toxic debt around the world is unclear, but the estimates keep rising each day. Although the focus to date has largely been on U.S. banks, the problem is clearly global and it is spreading beyond banks to insurance companies, pension funds, endowment funds and other entities.

• Governments around the world are prepared to absorb the losses of many insolvent fi nancial institutions, either through outright nationalization of such institutions, purchases of their underperforming assets and/or capital injections. These actions have dramatically increased global public debt and will continue to do so. In the case of certain large fi nancial institutions located in smaller countries, their liabilities may be too great for their host countries to absorb, in which case larger states will be called on to assist.

• Governments are committed to massive stimulus spending on infrastructure projects and to support industries, such as the automobile industry, which are unable to survive in their current form without government assistance. This spending will further increase public debt.

• Revenues for all levels of government have fallen and will likely continue to do so. Governments are unlikely to cut costs to match their revenue declines. The result will be a further increase in public debt.

Management believes that these government actions and the state of the global economy generally will make it increasingly diffi cult for governments to fi nance their borrowings, as lenders begin to question how such borrowings will be repaid. Ultimately, this should result in higher government borrowing costs, which would be crippling, and/or increased monetization of public debt and a corresponding decrease in the real value of fi at currencies. Such prospects support the Company’s holdings of gold and silver bullion and management believes that, in time, a greater number of people around the world will increase their holdings in gold and silver bullion as they begin to lose faith in fiat currencies. Such a loss of faith should, in time, be supportive of commodities and real assets generally, as holders of low-yielding debt instruments, both private and government issued, exit such instruments and move to hoard commodities and real assets."

Click Here To Download The Sprott Resource Corp. Annual Report

Don Coxe Basic Points April 2009

2009-04-28T17:15:00.000-07:00

Don Coxe Basic Points April 2009 - Where Will America Go to Grow?

To read/download Mr. Don Coxe's April 2009 Edition of Basic Points Click Here

Props: http://www.marketfolly.com

BMO CM Basic Points April 2009

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Don Coxe Basic Points March 2009

2009-04-03T07:45:00.001-07:00

Don Coxe Basic Points March 2009 - The ObamaMama Bear Market?

To download Mr. Don Coxe's March 2009 Edition of Basic Points Click Here

**Hearty Thanks: Reader Bill S.**

Jennings Capital Oil and Gas Focus Picks for 2009

2009-01-15T06:00:00.002-08:00

continued ...

Another one of Ron Coll’s colleagues at Jennings Capital is Gregory Chornoboy. Chornoboy covers the oil and gas sector. His two picks are Tethys Petroleum (TPL: TSX) and Calvalley Petroleum (CVI.A: TSX).

Tethys Petroleum (TPL: TSX)

Tethys drilled 9 successful gas wells in Kazakhstan in 2008, discovered the new Tasaran zone and signed the Tajik PSA for an area nearly four times larger than anticipated. Chornoboy writes “Kokbulak prospect is testing now, with results expected before year end, and the Phase 2 compressors are being installed, which will bring production up to 40+ MMcf/d in the new year.” The company has also announced a strategic relationship with a Russian electrical company that could be both a gas purchaser and a joint venture partner in project development.

Catalysts for 2009

- "Start-up of the Phase 2 compressors in January, lifting production to 40+ MMcf/d.

- First results from workover programs in Tajik fields (Q1).

- Drilling the Akkulka deep test into the Jurassic and Triassic zones (results in April).

- Production increase to 60 MMcf/d (and possibly 72 MMcf/d) in Phase 3 (early - mid Q3).

- Continuous drilling of the leads and prospects already identified in Kazakhstan."

Chornoboy has a $3.00/sh target price on Tethys Petroleum.

Calvalley Petroleum (CVI.A: TSX)

Chornoboy expects Calvalley’s Central Processing Facility to start up “imminently” and that should allow production to double. The company’s main draw and risk for that matter is its pipeline project from Block 9 in the Republic of Yemen that would allow it to connect to a third party pipeline system for the export of crude oil production. While the company has encountered some setbacks with the commerical arrangements in shipping oil to Block 18, it is currently in discussions regarding alternatives for marketing and the pipeline. Chornoboy expects some kind of resolution in this matter in early Q1/09 and “procurement and construction to commence shortly thereafter.”

Catalysts for 2009

- "Central Processing Facility start-up allows increase in production to 5,000 Bbl/d (CVI WI) (Q1).

- Calvalley has received the final version of a reservoir simulation, which has been given to its reserve evaluators. This could result in substantial reserve increases in the Company’s 2008 year end reserves.

- Extended production test results from Qarn Qaymah oil discovery (Q2).

- Exploration wells at South Qarn Qaymah and Rashidah (Q1/Q2).

- Progress on pipeline (initial announcement in Q1, and continuous progress throughout 2009).”

Chornoboy has a $3.35/sh for Calvalley Petroleum

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Macro Market Comment - Salida Capital

2009-01-14T08:15:00.002-08:00

“The Fed is determined to "win" their war on deflation and reflate asset values, and has the conventional and unconventional fiscal and monetary tools to win, although timing of a global economic bottom is difficult given the unique extremes in policy and the global nature of this deep recession. And there is no free lunch for throwing trillions of stimulus at these problems but it de-risks the economy in the short and medium terms. We believe there is risk in treasuries and the US dollar and have positioned the fund accordingly.

With a weakening Fed balance sheet, low rates, a lower US dollar on the horizon and competitive currency devaluation, we believe hard assets are preferable, gold primarily at this stage of the weakened economic cycle. Energy and base metals to follow in that order. Gold has performed below its potential during the drastic deleveraging of Q4/08 (the last I checked the bank isn't taking gold to settle margin calls...yet). Deleveraging has peaked and is starting to decline, which will both independently weaken the US dollar and remove the overhang on gold.”

Source: Salida Capital Multi Strategy Fund December Performance Report

Odds & Bits: Click here to register for a live webcast with Courtenay Wolfe, CEO & President and Brad White, Lead Portfolio Manager of the Salida Multi Strategy Hedge Fund on Thursday, January 15 at 3:00PM EST

Buy, Sell or Hold Sterling Resources (SLG: TSX-V)

2009-01-14T06:00:00.003-08:00

On January 12, 2008 Tristone Capital analyst Toby Pierce released an update on Sterling Resources. Much of the following has been excerpted and/or summarized from that source.

[click graphic to enlarge]

Europe’s dependence on Russia for it’s natural supplies has in recent weeks been highlighted in light ongoing dispute between Russia and Ukraine over gas pricing. In anticipation of European utilities and gas providers turning to additional sources of natural gas supply, Sterling Resources seem ideally positioned to deliver on this prospect. Pierce writes “The company has net best estimate contingent P50 resources of 94 bcf in the Doina development offshore Romania and net best estimate P50 resources of 263 bcf in the Breagh Field in the UK North Sea.” Sterling’s assets, while in need of further development, should in Pierce’s opinion, command a premium in the market place. Furthermore, there is significant exploration potential in Sterling’s asset base and thus opportunities to expand its resource base.

Sterling and its partners are currently in the process on appraising the Breagh fields. Pierce writes “Testing has commenced on the recently drilled 1200 foot horizontal section into the West Breagh well and results are expected in ~2 weeks. The test results of the appraisal well on West Breagh will help the partnership determine potential production parameters. We understand the partnership is looking for a rate in excess of 30 mmcf/d if the total sand interval is tested. With the test results Sterling and its partners will be in a position to monetize either a portion or all of Breagh.”

In December 2008, Sterling announced that it had farmed out 50% of its 65% offshore Romanian interest to Melrose Resources plc in exchange for an initial payment of US $12-million which will be made to Sterling on closing the deal (Pierce expects this to happen in Q1/09) and a further US $12-million will be paid at the time of the Doina area development project sanction or one year from the date of closing, whichever is earlier. Melrose will also carry Sterling for a proportion of their future development costs. The amount of the cost carry will be between US $58-million and US $72.7-million, depending on the gas price achieved for the development project, ensuring Sterling is carried for development activity into 2011. Sterling will retain a 32.5% working interest in the Pelican and Midia Blocks. Pierce considers this a “clearly positive” transaction as it “implies its remaining interest in its Romanian offshore assets is worth at least C$0.71/sh.”

Pierce opines that Sterling is trading at 24% of the company’s break-up value using current transaction metrics (see figure below).

[click graphic to enlarge]

He believes that much of the discount is unwarranted because:

1. Non Distressed Sales of Gas Assets Still Relatively Robust

The recent transaction by which Bow Valley got rid of its Peik Field to Centrica implied a “transaction metric of US$2.17/boe. This distressed sale was at the bottom end of the range for undeveloped assets and clearly reflected the difficult position Bow Valley found itself in.” Given the large size of Sterling’s Breagh and Doina prospects, higher working interest positions and operatorship and as mentioned earlier and the need for European gas providers to procure resources outside Russia means that” Sterling could realize selling its assets would be much higher than we have used in our calculations above (See figure above).

2. In addition to the US $12-million that is due from Melrose Resources plc, Sterling has an agreement under which it may call for a further US $8-million of additional funding in the form of a "top up facility" with Jersey based Gemini Oil and Gas Fund II, L.P., as a supplement to the existing loan agreement with Sterling's UK subsidiary. Furthermore, the company has deferred drilling on its promising Airdh and Midia SE exploration wells, is looking at farming out a portion of its UK offshore assets, including Breagh, and has put up its UK onshore and French assets up for sale.

Catalysts Over The Next 12 Months

- Results from the testing of West Breagh horizontal well are expected within the next week to 10 days. Pierce writes “The partners are hoping for a test of 30 mmcf/d+ which if achieved would significantly reduce the capital requirements to develop the field.”

- The announcement of a sale or farm-out of a portion of Breagh, similar to what was done with Sterling’s Romanian assets and the arrangement with Melrose Resources plc. Pierce expects news to this effect before the end of Q1/09.

- Testing of flow rates at the Cladhan prospect and an additional appraisal well or sidetrack, which is expected to occur toward the middle of 2009.

- Sale of its onshore UK and onshore French assets. The sale should further bolster Sterling’s balance sheet and reduce some of the company’s capital commitment in the future.

- Exploration well on the Midia SE offshore prospect. Price writes “A successful well (fully carried by partners) is due to be drilled prior to year-end and would be worth C$0.23/sh unrisked.”

Valuation

[click graphic to enlarge]

Assuming US$50/b oil and US$7.00 mmbtu, Pierce comes up with a core NAV of C$1.86/sh based on C$0.20/sh in cash and C$1.71/sh in undeveloped assets which are made up of primarily Breagh, Cladhan, and Doina. Pierce pegs a C$2.30/sh target price on Sterling Resources.

Disclosure: I own Sterling Resources.

Westjet Airlines Q4 2008 Earnings Preview

2009-01-13T09:00:00.004-08:00

On January 12, 2009, Starmine, the company known for ranking the accuracy of sell-side analysts released its Earnings Surprise Forecast for Q4 2008. This feature focuses on stocks that Starmine predicts will experience an earnings surprise in the upcoming reporting season. This is done by quantitatively analyzing the earnings estimate accuracy of sell-side analysts and using that data to creating SmartEstimates. StarMine SmartEstimates predict future earnings more accurately than consensus estimates by putting more weight on the recent forecasts of StarMine's top-rated analysts.

Among their Positive Predicted Surprises, Starmine lists Westjet Airlines (WJA: TSX), American Science & Engine Inc. (ASEI: NASD), Copa Holdings (CPA: NYSE), Ship Finance International Ltd. (SFL: NYSE) and McDonalds Corp. (MCD: NYSE)

Given that Westjet is the sole Canadian feature – I shall highlight the reasons for it’s inclusion in the Starmine Positive Earnings Surprise Forecast for Q4 2008.

For Q4/08, the consensus EPS as indicated by Starmine is C$0.29.
The StarMine SmartEstimate is C$0.38, a predicted surprise of 29.8%.

Highlights Of Analyst Notes

5 Star Ranked analyst Jacques Kavafian of Research Capital who has a StarMine “Bold Estimate” of C$0.42 (EPS) for Westjet’s Q4/08 claims that “airlines are a call on the economy and a put on oil, implying that a weak economy may negatively impact airline stocks, but lower fuel prices will compensate for lower traffic.” Kavafian also mentions the highlest load factor in the airline’s 12 year history.

4 Star Ranked analyst David Tyerman of Scotia Capital also has an Q4/08 EPS estimate of C$0.42 for Westjet.

Westjet is scheduled to report it Q4/08 earnings on February 10, 2008.

Source: Starmine (click here to read about the other mentioned companies)

Odds & Bits: I am in no way affiliated or compensated by Starmine - just thought i'd point out this feature.