Wall Street Mess

The Healthy Food Trend

2012-02-21T09:53:00.000-05:00

U.S. food and food retailing companies are rolling out aggressive healthy food initiatives to generate positive PR and to stay one step ahead of government regulations.

The world's largest retailer Walmart (NYSE: WMT) is the latest company to jump on board the healthy food bandwagon. Beginning in April, it will use “Great for You” labels on its own brands to highlight food products they deem to be healthy for consumers and meet criteria on protein, fiber, fat, sugar and sodium. The company specifically said the initiative would give mothers a simple and reliable way of identifying good food to feed to their children.

Walmart is using its own internal labeling system to highlight fruit, vegetables, whole grains, lean meats,yogurt, snack bars and frozen foods that have low levels of fat, sugar and sodium. This is an important milestone for the industry as a whole since Walmart is often considered to be the industry standard setter.

But Walmart is far from the first company to come out with healthy food campaigns and labeling systems. Other food retailers have already gone down that path. The NuVal labeling system scores food for nutrition on a 1 to 100 scale and was launched in 2009. It is currently being tested by Kroger (NYSE: KR), the biggest U.S. supermarket company as measured by sales.

There are many other such examples of companies emphasizing healthy foods in the industry. Perhaps best known is the healthy foods retailer Whole Foods (Nasdaq: WFM) which has a “Health Starts Here” line of food products that contain no processed food, no added oils or sugars, and have a high vegetable and fruit content.

It's not just food retailers who are emphasizing healthy foods, but food companies themselves.

General Mills (NYSE: GIS) last year said its organic food business was now a “growth engine” for the company and that the success there would transform its entire product line. Its emphasis on health can also be seen in its latest ads for children's cereals which talk about how the cereals are loaded with more healthy whole grains than ever before.

Then there is PepsiCo (NYSE: PEP) which, led by its CEO Indra Nooyi, has gone on a major health food push. Its goal is to double the revenues it receives from nutritious products by the end of the decade. Pepsi though is also turning into a case study of how not to jump into the long-term healthier food trend.

While making its push into healthier foods, Pepsi has been criticized by many as forgetting about its core business – selling carbonated beverages around the world. As its latest earnings report shows, sales of its core Pepsi brand remain flat at best globally as it continues to lose ground to rivals.

Pepsi's example highlights the possible danger lurking for investors looking to get in on the growing trend toward healthy food. The risk is that companies may overreact and place too much of an emphasis on it as Pepsi management has done. This emphasis on health is confusing many times for food companies (and their research labs) which for decades have emphasized taste above all else.

Yes, there is a definite growing appetite for healthier foods among Americans. But companies should be careful about moving too far from what made them successful for so long, like Pepsi.

So for investors looking to invest in this trend, the safer bet may be to go with the food retailers rather than the food companies themselves. And preferably one that is already identified with healthy foods such as Whole Foods.

This article was originally written for the Motley Fool Blog Network. Please check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

Welcome to the CyberWar Front

2012-02-15T14:25:00.000-05:00

The way wars are fought is changing rapidly.

From conflicts using hardware – planes, ships, tanks, guns and troops – wars in the future are more likely to be fought using computers and malicious software. In other words, cyber warfare.

Companies involved in the defense business like Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and others are steadily shifting their business to fighting such a war. The move has been accelerated in the light of a number of high-profile attacks such as the Stuxnet attack in 2010 on Iran's nuclear program.

There is a virtual feeding frenzy among these companies and specialist national security firms like Mantech International (Nasdaq: MANT) and CACI International (NYSE: CACI) right now to provide the U.S. government the means to protect against a cyber attack or even to launch one of its own on enemies.

Many of the bigger companies like Boeing are expanding in this area largely through the acquisition of small companies that specialize in cyber warfare with more than a dozen acquisitions occurring in 2011.

All of the companies in this sector are hoping to get a piece of the expanding U.S. budget for cyberarms. American defense, intelligence and homeland security agencies currently spend about $10 billion annually on cybersecurity according to software firm Deltek.

That is a very small portion of the Pentagon's $600 billion annual budget. But what should grab investors' attention is the fact that the $10 billion figure is expected to climb by at least 9% a year for the foreseeable future, even as the rest of the Pentagon budget is facing cuts.

Add to the Pentagon's cyber budget what private companies are spending on cyberarms and fighting against cyber criminals, and the cyberwar market is more like a $100 billion market in the United States alone, says Northrup Grumman (NYSE: NOC) executive Kent Schneider. By the way, cyberarms already accounts for over $1 billion of the company's $27 billion in annual revenue.

Outside the United States, spending on cyber warfare has also picked up. Since the Pentagon's Cyber Command (with 10,000 people when fully staffed) became operational in 2010, more than a dozen countries, including the U.K. and France, have moved to setting up a similar operation.

Unfortunately, even with the military preparedness for cyber warfare, the U.S. is still very vulnerable to cyber attacks.

The fact is that about 85% of the internet is under control of private companies which aren't spending much on protecting their piece of cyberspace. This is particularly troublesome when it comes to vital infrastructure.

Experts in cybersecurity believe that the companies which control the U.S. electric grid, transportation and telecommunications networks need to invest into safer infrastructure.

An attack on any key part of the country's infrastructure could cripple the U.S. economy. It is estimated that damage from a single wave of cyberattacks on critical infrastructure could exceed $700 billion.

Some industries are taking the threat seriously. Utilities, for example, are working on measures to defend against cyberattacks. Deployment of cybersecure systems is expected to take place by 2020.

But there is a lot of work to be done by both private companies and the government when it comes to cyber defense, creating vast opportunities for companies involved in this sector.

Investors should expect an acceleration of the demand for cybersecurity in the years ahead from both the government and private enterprise. This can only benefit companies in the sector.

This article originally appeared on the Motley Fool Blog Network. Please check my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

DNA Sequencing Companies in Spotlight

2012-02-13T12:58:00.000-05:00

The recent $5.7 billion hostile takeover bid by Swiss pharmaceutical giant Roche ADR (OTC: RHHBY) for U.S. based Illumina (Nasdaq: ILMN) has certainly shined the spotlight on the business of DNA sequencing. Illumina has sought to fend off Roche through the use of a 'poison pill' defense.

The takeover is just another indication of the drug company's desire to develop treatments in combination with accompanying diagnostics. This will better insure that its drugs are given to patients that will benefit the most from the drug in the proper dosage.

Roche already has vast experience with gene-targeted therapies. For example, it sells the breast cancer drug Herceptin which is aimed solely at breast cancer patients who happen to have a particular genetic mutation. It also has won approval for a melanoma drug, Zelboraf, that works on patients whose tumors have a specific gene mutation.

The company's diagnostics business has centered around DNA technology since 1991 when it bought the worldwide rights to polymerase chain reaction, the primary technology for manipulating genetic material.

Since then it has developed or acquired tests for detecting and decoding DNA, including the whole human genome (3 billion biochemical letters). The first human genome was decoded in 2003.

Roche's COO Daniel O'Day called the market for machines that map DNA as “fast-growing” over the last five years.

So it came as no surprise that the company targeted one of the leaders in large-scale DNA sequencing – Illumina. Other leading companies in the industry include Life Technologies (Nasdaq: LIFE) and Affymetrix (Nasdaq: AFFX).

The devices made by these companies search through DNA coding that contains the instructions for making all human cells. This helps scientists understand how mutations found by these machines contribute to disease. This is especially true with cancer, where mutations can contribute to uncontrolled cell growth. The goal for doctors is to someday use genetic data to help stop the growth of cancer cells.

Illumina is definitely the leader in this field but Life Technologies is running hard to catch up. Earlier in January, it announced a new sequencer that can read a whole human genome in less than a day for only $1,000.00. Illumina is expected to have similar machine sometime in the second half of 2012.

The key takeaway about this industry today for investors is that it is moving out of the laboratory and into the mainstream of medicine, clinical practice.

The stocks of these DNA sequencing companies have plummeted over the past year – Illumina was down 58% - because their target customers were mainly scientists dependent on grants in a tough economy. But as evidenced by Life Technologies' announcement, that is changing.

Thankfully so as currently it is only an $1 market. But now opportunities should expand rapidly – it is expected to be a $2 billion market by 2015. As Life Technologies CEO Greg Lucier stated, “This is going to be an enormous opportunity, and now you see it unfolding.”

Roche's bid for Illumina in effect confirms what Mr. Lucier said and that DNA mapping will be the key to the future of diagnostics.

Even though Illumina is the best in the sector, the bid should ignite interest in the other firms in the sector from companies which, like Roche, already have an interest in DNA technology. These may include the likes of Abbott Laboratories (NYSE: ABT).

If Illumina fights off the hostile takeover, Roche may buy one of these other companies in the space instead. Either way, with its expertise in diagnostic tests Roche is a perfect for these firms as it can get them in the door in the routine clinical medicine world with relative ease.

Roche will not stop until it has Illumina or another DNA sequencing firm in its grasp.

This article for originally written for the Motley Fool Blog Network. Check out my daily articles for Motley Fool at http://blogs.fool.com/tdalmoe/

The Leaders in Smart Grid Technology

2012-02-09T10:45:00.000-05:00

The debate which electric transmission technology to use – either AC (alternating current) or DC (direct current) – goes back to the time of Thomas Edison, a proponent of DC.

AC seemed to have won the debate since it is the method that is widely used to bring power into our homes and businesses. But surprisingly, the debate is not settled. In a smart grid world, DC is making a comeback.

The latest DC technology, HVDC, has been called the backbone of plans for smart grids or supergrids.

Two European companies are leading the charge in HVDC – high voltage direct current – technology. These companies are Germany's Siemens ADR (NYSE: SI) and Switzerland's ABB ADR (NYSE: ABB), which control about 80% of the market.

This technology allows the transmitting of electricity at higher voltages and over longer distances with minimal power loss when compared to current transmission technology.

Transmission losses and other inefficiencies due to the use of AC power is of some consequence in the developed world since semiconductors need DC power. Just think about all the electronics and appliances in homes that have semiconductors in them. These devices have to convert AC power into DC power, generating heat and wasting energy.

In the emerging world, it is of even greater importance. Rapid economic growth has given rise to surging demand for electricity. However, many end users are far away from the actual power sources making power losses incurred over transmission lines a vital issue.

Therefore, HVDC has become a growth industry. Both Siemens and ABB estimates that HVDC will be a $10 billion business in the next five years.

The companies forecast installation of new HVDC transmission lines by 2020 with a total capacity of 250 gigawatts. This is a dramatic increase since in the last 40 years there has been just 100 gigawatts worth of HVDC transmission lines installed.

One factor holding back this technology to date is the fact that such systems have lacked flexibility, allowing only one power source and end user. The users of such systems, electric utilities, would like to make multiple connections to these power lines allowing them to switch on or off individual sections of the line. This a must for power grids in the developed countries.

But there is a problem. Companies like ABB and Siemens have yet to develop effective circuit breakers to handle the DC voltages involved. The difficulty is that the technology involves more than simply breaking a physical connection between two pieces of metal, as with AC switch technology.

Instead, researchers at the companies are trying to adapt the advanced semiconductors used by both firms in the 'converter stations' of their HVDC lines, where AC and DC power are converted back and forth. At the moment, no breakthrough seems imminent, but is inevitable.

In the years ahead, as energy research firm Pike Research said, “the role of DC will increase, and AC will decrease”.

This makes sense if only from the standpoint that power generated from renewable sources such as wind and solar produce DC power. And DC power transmission lines to get this power to end users is certain to increase.

HVDC and the companies leading way in this technology will definitely be worth watching for those investors interested in the smart grid technology space.

This article was originally writtern for the Motley Fool Blog Network. Check out my daily articles for the Fool at http://blogs.fool.com/tdalmoe/

Apple Takes Lead in Digital Learning

2012-02-06T16:27:00.000-05:00

School-age children are quickly moving away from the traditional ways of learning, involving the use of paper, pencil and printed textbooks.....

The age of digital learning is upon us.

At the forefront of this new era is a company known to every investor – Apple (Nasdaq: AAPL).

The company recently announced its long-anticipated entry into the digital textbook market. It did so by unveiling a new “bookstore” for its iPad tablet, a new application for sharing university courses and a free publishing tool to help authors create interactive courses.

This is the company's first launch of a new product line since the death of Steve Jobs and therefore quite important.

The potential to improve students' results is significant. After all, children today have grown up with technology all around them all their lives.

The CEO of Discovery Education, a subsidiary of Discovery Communications (Nasdaq: DISCA), had some valuable insight on this subject. He said, “When they [students] go to schools and are asked to 'power down' and put technology away, you're not engaging them and you're going to lose them.”

Apple has wisely joined with partners in the educational publishing field to help sell their product. Some of the partners include well known names such as McGraw-Hill (NYSE: MHP) and Pearson ADR (NYSE: PSO).

These publishers and others unveiled a limited number of digital textbooks that are priced at $14.99 or less. Apple will take a 30% cut of the sales from these textbooks sold over its new iBooks 2 app.

This is a steep cut for Apple but its partners believe Apple can give the industry, with 1.4 billion students enrolled worldwide, just the rocket boost it needs.

Sales in the global textbook market are expected to reach $19.4 billion by 2013. The share of that market taken by digital textbooks is forecast to jump from just 3.4% in 2010 to 18.3% next year, especially if iBooks is a success.

Publishers are hoping iBooks succeed because they will also benefit from the switch to digital textbooks since they would no longer be burdened by the costs of printing and distribution of a traditional textbook.

Of course, it will not be entirely smooth sailing for Apple in this market.

Holding it back will be the price of its iPad - $499. Many schools simply cannot afford to buy iPads for use by their students and Apple made no mention in its presentation of offering schools a discount on its iPads. Currently, there are 1.5 million iPads being used by schools for educational purposes.

This may open the door to this market for lower-cost rivals such as the Kindle Fire from Amazon.com (Nasdaq: AMZN) which sells for only $199. The same publishers who are working with Apple have stated they are also involved in projects with Amazon and other tablet makers.

The educational market is relatively small for Apple, but its rapid growth offers Apple a wonderful opportunity to continue growing the company after the death of Steve Jobs.

But it is unlikely that iBooks will dominate the market as Apple does with music. The real winners here in the long term will be the publishers like Pearson, McGraw Hill and others.

Smartphone Usage Expands in Emerging Markets

2012-02-02T10:50:00.000-05:00

There is a trend in the technology and telecommunications spaces that has gone almost completely unnoticed by U.S. investors. That trend is the rapid expansion of entry-level smartphone usage in emerging markets.

Low-cost semiconductor technology has pushed down the price of a basic smartphone to below $100 in emerging markets over the past year.

In emerging markets such as India, high prices have been the main reason there has not been widespread use of smartphones. High prices have slowed the adoption of smartphones such as Apple's (Nasdaq: AAPL) iPhone and phones using Google's (Nasdaq: GOOG) Android operating system in these markets.

The new microchip design changing the smartphone market in developing countries was developed by the British company, ARM Holdings ADR (Nasdaq: ARMH).

The company has another microchip, the Cortex A7 processor, in the works by 2013 that will further advance the use of low-cost smartphones. It will be one-fifth the size of those used in other smartphones and five times more efficient. Arm says it will enable entry level smartphones below $100 which will be equivalent to a high-end $500 smartphone in 2010.

This is an important breakthrough. The CEO of Arm, Warren East, said “The sub-$100 price point is when we can start to talk about connecting the next billion people to internet content and services over mobile devices.”

The base of smartphones costing less than $100 is already estimated to be about 200 million, with the majority of those phones have been bought in the past year.

Now research from the consulting firm Deloitte says adoption of these cheap smartphones is expected to be even more rapid. Deloitte forecasts take-up of these low-cost smartphones to more than double in 2012 to above 500 million!

This development will help Arm Holdings to maintain its dominance in the mobile phone and tablet market. Chips, using its designs, are already in on the most popular products like Apple's iPhone and iPad devices.

Needless to say, it will also raise demand for connected devices, applications and the spectrum needed to carry vast amounts of data in the emerging world.

Deloitte predicts, for instance, the number of applications available on smartphones to double in 2012 to more than 2 million as a result of the popularity of $100 smartphones in emerging nations.

It will also obviously help the manufacturers of these low-cost smartphones such as Nokia ADR (NYSE: NOK), which remains a leader in mobile phone sales in emerging markets. Nokia was expected to have sold over 400 million phones in 2011, of which more than 300 million were sold in emerging markets.

The worry here for Nokia and others is whether players like Korea's Samsung and Apple will come out with low-cost versions of their successful smartphones. These two companies have surpassed Nokia as the biggest global manufacturers of smartphones last year.

No doubt Apple and Samsung will do so – Samsung is already pushing $200 versions of its Galaxy smartphone in emerging markets.

So the window for Nokia to regain its dominant position in emerging markets may be a narrow one.

This artciel was originally written for the Motley Fool Blog Network. To read all of my daily article for the Motley Fool, please go http://blogs.fool.com/tdalmoe/

Yum Pins Its Future on China

2012-01-31T10:33:00.000-05:00

There is perhaps nothing more ubiquitous in America than McDonald's (NYSE: MCD). The fast food giant has restaurants it seems in virtually every town and city in the country.

One of McDonald's rivals, Yum Brands (NYSE: YUM), dreams one day of having a restaurant in every town across the country. Yum Brands owns a number of fast food brands including KFC, Pizza Hut and Taco Bell.

But the country Yum management is dreaming about is not the United States where the company continues to struggle. When talking about its performance here in the United States, management called 2011 “disappointing” and “terrible” thanks to the weak domestic economy.

No, the country Yum Brands has its sights set on is China, where it already has a large presence and leads it rival, McDonald's, 3 to 1 in market share.

Fast food in China is definitely a growth business. This industry has recorded double-digit annual growth every year since 2003. But it is still half the size of its U.S. counterpart. When one thinks in terms of the size of the Chinese population, one can only think of the potential for more growth.

Yum Brands has had great success in China where its KFC brand is the number one fast food restaurant chain and its Pizza Hut brand is the number one casual dining restaurant chain in the country. Yum is still growing rapidly in China, opening one new restaurant every day in the vast Asian nation. The continued rapid growth led to Yum earning about $900 million in net income from its Chinese business in 2011.

The company's goal is to set up its fast food restaurants in all of China's second and third-tier cities over the next decade. It plans to more than double its restaurants in China by 2020, when it expects to have 9,000 of them spread across the country.

To accomplish this, Yum plans to build small restaurants in Chinese rail stations and airports and to use its well-developed distribution network to expand into the second and third-tier cities in China. These restaurants in the smaller cities should be very profitable because both labor and rents in these areas are cheap and the company's brands are already well known.

The company's hunger for growth extends beyond China too. Yum has also its sights set on other emerging markets besides China. It is trying duplicate its success in China in India and other developing Asian markets.

As in China, Yum plans to do this by offering innovative dishes catered to local tastes. In addition, the company plans to have extended hours and offer tasty breakfast choices to its consumers in these markets.

This is all part of the management's grand plan to pare back ownership of restaurants in developed markets while accelerating its push into emerging markets around the globe.

Currently, the breakdown of restaurants owned is 53% in emerging markets and 47% in developed markets. But Yum wants to tilt that heavily in favor of emerging markets.

The company says by 2014 it expects that 70% of the restaurants it owns will be in emerging markets with just 30% in developed markets.

Emerging markets now make up 58% of its operating profits. The management at Yum would like to raise that up around 75% over the next few years and they likely will.

This makes Yum Brands a good choice for investors looking to gain exposure to the growth of the developing market consumer. And without having to buy a foreign stock.

This article was originally written for the Motley Fool Blog network. All of daily articles for the Motley Fool can be found at http://blogs.fool.com/tdalmoe/

Tablet Wars Heat Up

2012-01-27T09:53:00.000-05:00

Tablet PCs are becoming more and more popular with consumers. The research firm NPD DisplaySearch last week estimated that the tablet PC market grew 250% in 2011 versus 2010 to 73 million units.

This heady growth not surprisingly has led to a heated battle for turf in this market between Apple (Nasdaq: AAPL) and its global rivals.

Last year tablet PC manufacturers from all over the world charged into battle against the preeminent tablet PC, the iPad from Apple. They all boasted they had the device which would knock the king off the throne.

None succeeded. Apple's iPad still retained a two-third market share.

In fact, some iPad rivals failed miserably...most notably the Touch Pad from Hewlett-Packard (NYSE: HPQ) and Research in Motion's PlayBook (Nasdaq: RIMM) But that does not mean the others have given up trying.

Apple's rivals this year are counting on a new Android operating system from Google (Nasdaq: GOOG) and the arrival of Microsoft's (Nasdaq: MSFT) Windows 8 to cut into Apple's market share. The addition of improved content from the likes Samsung and Sony ADR (NYSE: SNE) will be another weapon in the battle with Apple.

The release in 2011 of the Android 3.0 version, called Honeycomb, was not a success. It was designed specifically for tablets so it, in effect, split the Android operating system into two. It therefore did not get much developer support, ending up with a small base of Honeycomb tablets that offered very few applications.

This situation should change in 2012 with the introduction of the Android 4.0 version, called Ice Cream Sandwich. It is a unified operating system which already appeared in November operating Samsung's Galaxy Nexus smartphone. Since it is a unified system, the assumption is that developers will come up with lots of apps for it.

Microsoft's Windows 8 will come out sometime in the second half of this year. The excitement here will be its touch-optimized 'Metro' interface offering a bold alternative to the traditional Windows desktop. Tablet makers like Toshiba say “we're very excited about Windows 8 and we think it will grow the market for tablets in 2012.”

Also entering the fray are the makers of ereaders like Amazon (Nasdaq: AMZN) which have hit hard with their versions of tablet PCs selling for under $250. Amazon's Fire led its Kindle tablet to sales of more than 1 million a week in December.

One important aspect to Amazon's success so far has been its ability to sell its content and services, offering consumers a quality experience.

The ereader companies, with their low prices, will likely put the squeeze on Apple's other competitors who are trying to sell their tablets at somewhere near the $500 iPad level. A survey by the consumer electronics site Retrevo last month showed that consumers are unwilling to pay more than $250 for a non-iPad tablet.

But the survey showed consumers are willing to pay $500 for the iPad thanks to its apps and content.

The launch of iPad 3 in the spring may give consumers even more reasons to stick with Apple. It will be hard to dethrone this king.

This article was originally written for the Motley Fool Blog Network. Please check out my daily articles for the Motley Fool at http://blogs.fool.com/.

China, Rare Earths and Quotas

2012-01-23T10:53:00.000-05:00

Rare earths are an important group of 17 elements used in a variety of manufacturing industries including technology.

They are broken into two groups – 'light' rare earths and 'heavy' rare earths. Light rare earths are actually relatively common and are often a by-product of producing heavy rare earths. These elements are much rarer than 'light' rare earths and are used in products such as magnets, lasers, smartphones and plasma TVs.

The list of heavy rare earth elements include: yttrium, promethium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, lutetium and yterrbium.

China currently is the dominant supplier of rare earths, accounting for 97% of global production, so any action it takes in this sector is important.

Recently China raised its export quota for rare earths for the first time in six years. The country has used export quotas to restrict global supplies and therefore prop up prices. China lifted its export quota by a mere 3% from 30,246 tons in 2011 to 31,130 tons in 2012.

Even though the amount China raised the quota is small, it looks set to reinforce a trend that has already been in place...falling prices for many rare earths. Many prices are down 30% to 40% from record highs set in July 2011. Prices are down due to a stifling of demand from users by the historically high prices.

This is not good news for one of the two major non-Chinese companies in the industry- Molycorp (NYSE: MCP) – which has been adding to its rare earth production capacity. Its stockholders have seen the value of their shares fall by two-thirds from the 52-week high of $79.16 to $25.50.

The exchange traded fund which tracks a basket of rare earth stocks has also fallen sharply. The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is down from a peak of $28.91 a share to $15.65 currently.

However, it may not be all gloom and doom. In the newly announced quota system, China set up separate quotas for 'light' and 'heavy' rare earths. The government did this in an effort to stop companies from exporting those rare earths with the highest prices in order to increase profits.

Industry executives say the quota for the 'heavy' rare earths, 15% of the overall quota, may actually make supplies of these elements scarcer.

In addition, over the past few years China has been trying to clean up the highly polluting industry. The government has closed illegal mines, consolidated smaller mines and forced some processing plants to upgrade their environmental systems.

China's rare earth miners and processors are still adjusting to the country's new regulations concerning rare earth mining. This in itself will likely lead to reduced availability of heavy rare earths and push up prices for the scarcest ones.

The Chinese government is also well aware of the value of heavy rare earths over the long term.

Canadian rare earth company Neo Material Technologies operates rare earth processing plants in China. Its CEO, Constantine Karayannopoulos, expects shortages in heavy rare earths in 2012 due to changes in Chinese regulations and quotas.

He said the new quota system announced by China shows the country is serious about “the preservation of the heavy rare earth resources”.

The situation in China may mean it will be a bit of a bounceback year for shareholders in both Molycorp and the Market Vectors Rare Earths ETF. But the historically still-high prices for rare earths will continue to limit demand for the elements and price gains for MCP and REMX.

This article was originally for the Motley Fool Blog Network. Please see all of my articles for the Motley Fool Blog at http://blogs.fool.com/tdalmoe/

Electric Vehicle Sales in Neutral

2012-01-19T13:15:00.000-05:00

The latest generation of electric cars came to life thanks to two factors – higher fuel prices and the development of advanced lithium-ion batteries with the ability to power cars over longer distances, around 100 miles.

However, sales of these latest models of electric vehicles have failed to show much spark. Not really surprising considering that hybrid vehicles, with both a lithium-ion battery and a conventional engine, have grabbed only a 2.3% market share in the United States since first becoming available over a decade ago.

In their first full year of sales, both the Volt from General Motors (NYSE: GM) and the Leaf from Nissan Motor ADR (OTC: NSANY) have come in below even the modest expectations of 30,000 vehicles sold combined.

Slow sales for these electric vehicles were attributed to supply bottlenecks and still too high prices, despite government subsidies.

Of course, in the case of General Motors, it did not help that their batteries caught fire shortly after undergoing crash tests. But even before then, GM reported that it would not meet its modest target of selling 10,000 Volts in 2011.

Nissan is doing better with its Leaf car than GM is with Volt. The company sold 20,000 vehicles through November which was just slightly below company expectations. Nissan did this despite having to overcome problems caused by the earthquake and tsunami in Japan last year.

The company is optimistic enough for 2012 that it said it will produce 40,000 Leafs this year. Its CEO Carlos Ghosn remains the industry's strong proponent. He continues to maintain that his company will sell 1.5 million electric cars annually by 2016 and he believes electric vehicles will make up 10% of the global market within a decade.

However, others are not as optimistic as Mr. Ghosn. PricewaterhouseCoopers estimates that all-electric vehicles will make up a mere 1% of the global car market in 2017. Pike Research says they will account for 3% of the global market in 2017. JD Power believes that these cars will make up only 3% of the global market a decade from now.

The main sticking point with all-electric vehicles seems to be price, according to the latest report from Pike Research. Other negatives for all-electric vehicles pointed out in the report include a limited driving range and unproven battery technology.

All three points are valid, especially price. The Volt and the Leaf, even after sizable government subsidies, still sell for nearly double the price of internal combustion engine cars.

The report also pointed out there is no first-mover advantage for GM and Nissan. People surveyed by Pike said they were more likely to buy an electric car from Toyota Motor ADR (NYSE: TM), Ford (NYSE: F) and Honda Motor ADR (NYSE: HMC) ahead of GM and Nissan.

What most likely will happen is that consumers will buy an electric vehicle from whatever company gives them one at a reasonable price and with a longer driving range.

But that may have wait until the next-generation of battery power for electric vehicles comes out within a few years.

Then when these vehicles are mass produced, we will get a true reading of who the winners will be in this industry, if any.

This article was originally writtern for the Motley Fool Blog Network. You can find all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

Yahoo and Microsoft Again

2012-01-17T10:34:00.001-05:00

There is a scramble on for Yahoo (Nasdaq: YHOO). The company has entered talks with at least two private equity firms – Silver Lake and TPG – among others.

Let's not forget too there is also Jack Ma and his company, Alibaba, which is looking to break its ties with Yahoo, even if it involves buying out the company. It said that he and Softbank, Yahoo's partner in Japan, may make a joint bid for Yahoo.

Back in 2005, Yahoo acquired a 42% stake in the Chinese e-commerce company. A recent private equity investment valued Alibaba at $32 billion, so Yahoo's Alibaba stake is one of the few jewels left in its crown.

The corporate melee over Yahoo was triggered several months ago by the firing of CEO Carol Bartz and the news that Yahoo was considering strategic options for the company.

These options initially concerned only plans for turning around the company, but they have quickly expanded. Options now include sale of its Asian operations or even the entire company.

So with Yahoo back in play, one question investors are asking is whether Microsoft (Nasdaq: MSFT) should take another run at the company.

As investors will recall, Microsoft attempted a takeover of Yahoo in 2008 at $33 a share, but its bid collapsed. Sadly for Yahoo investors, that price is more than twice the current stock price.

Microsoft blamed the breakdown of the talks on Yahoo co-founder Jerry Yang who kept holding out for a higher price. The Yahoo side blamed Microsoft CEO Steve Ballmer who they say simply walked away from the deal.

After that very public and unpleasant experience, it is very doubtful that Microsoft would launch another bid for all of Yahoo.

However, it does seem to be taking an interest in Yahoo again. The reasoning is that, at the least, Microsoft wants a seat at the table when Yahoo's fate is decided so it can protect the relationship it has with Yahoo.

Microsoft has an alliance with Yahoo where it outsources its internet search business to Microsoft. Some analysts estimate this business alone accounts for half of the value of Yahoo's core operations, excluding the company's operations in China and Japan. So it is not surprising that Microsoft is trying to protect its interests.

But perhaps Microsoft has something else in mind.

A full merger of its MSN online service with Yahoo could be advantageous. It would bring together two complimentary and well-known internet properties. The cost savings will be meaningful, even for a giant like Microsoft. And in today's smartphone and tablet-centric world, it may create a powerful portal through which content can be distributed.

Microsoft may also be interested in Yahoo's presence in China through Alibaba. But with Jack Ma battling so fiercely for his independence from Yahoo, it is doubtful he will want to tie up with another American tech giant.

The final outcome in the scramble for Yahoo is anybody's guess right now. But most likely Alibaba and Softbank will gain their independence, while Microsoft is a main contender for the rest of Yahoo.

This article originally appeared on the Motley Fool Blog Network. Please check out all my articles there at http://blogs.fool.com/tdalmoe/

'Crackberry' Addiction on the Wane

2012-01-13T16:09:00.001-05:00

The coolest of all mobile devices used to be the Blackberry which is made by Research in Motion (Nasdaq: RIMM). Its qualities made it almost addictive to its users, hence the nickname 'Crackberry'.

But all that began to change in 2007 with the introduction of the touchscreen-based iPhone from Apple (Nasdaq: AAPL).

Today, many of the former 'crackberry' addicts now carry around an iPhone or a smartphone with the Android operating system developed by Google (Nasdaq: GOOG).

In the key North American market, which accounts for 40% of sales for RIM, Blackberry is rapidly losing market share.

According to figures released in early December by market research firm ComScore, the company's share of the U.S. smartphone market fell by 4.5 percentage points to 17.2% in the three months ending in October.

Globally, Research in Motion is not faring any better. IT research firm Gartner estimates that RIM's share of the worldwide smartphone market fell to 11% in the third quarter, down from 15.4% in the year ago period.

Why has this happened? A series of management mistakes and product delays can be blamed. For instance, the one winning product they have – BBM or Blackberry Messenger – is being constantly played down and ignored by management while they continue pushing losers like Playbook.

Things don't look like they will get better any time soon either. The company recently announced a $485 million pre-tax writedown on the value of unsold Blackberry Playbook Tablets. RIM had already been forced to lower the price of the Playbook, which the company had touted as the product which would replace the iPad, from $499 to $199.

RIM also recently took a $50 million charge against revenues to cover the network outage it suffered which left users unable to access its network for days.

These problems, of course, have crushed the stock of Research in Motion. From more than $70 a share a year ago, RIM's shares just hit another 52-week low on Friday to just above $13 a share, a drop of more than 80%.

Can Research in Motion somehow recover from these missteps?

One hope is that the company successfully makes the transition from products based on its old Blackberry operating system to products based on its new operating system, called BBX. Next-generation devices, based on BBX, are expected to hit the market sometime in the first half of 2012.

Another hope is the aforementioned BBM instant messaging service. It looks similar to SMS text messaging, but is both faster and cheaper, coming without the need for a data package. And it is probably the sole reason individual consumers now outnumber business users of Blackberry. BBM is extremely popular among young people in the U.K., Netherlands, Brazil, Indonesia, South Africa and the Middle East.

But it is unlikely any turnaround will occur under the leadership of the co-CEOs of Research in Motion – Mike Lazaridis and Jim Balsille. They have stuck too long with RIM's aging portfolio of products and seemed to have lost touch with the company's user base.

Investors are advised to steer clear until a management change occurs.

Article originally written for the Motley Fool Blog Network. Check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

Video Game Industry Still Thriving

2012-01-11T13:30:00.001-05:00

It was 17 years ago when the first popular title in the “first-person shooter” game genre, Doom, hit the store shelves. Ever since, these type of games have become a fixture on consoles such as Xbox from Microsoft (Nasdaq: MSFT) and PlayStation from Sony ADR (NYSE: SNE).

It seems almost as long ago that naysayers have been predicting doom for the industry. But despite industry naysayers, the video game business is still doing rather well.

Look at the new video game from Activision Blizzard (Nasdaq: ATVI), Call of Duty:Modern Warfare 3. It achieved record sales of $400 million on its first day. That is better than many releases of films from Hollywood!

Nevertheless, some analysts continue to be concerned about Activison's future. They point to some of its main franchises such as World of Warcraft which lost nearly 1 million subscribers this year.

These same analysts also worry that the Call of Duty franchise, which has already sold more than 100 million units, may also be reaching a saturation point.

These doubts persist even though Activision once again beat analysts' estimates for sales in the latest quarter by 47.5%. At the time, the company also raised its earnings guidance for the full year.

Yet, ever since the announcement, the company's stock has fallen more than 10%.

Investors seem to be ignoring that Activision is not standing still. It is actively marketing its key franchises like Call of Duty and World of Warcraft.

Activision has also partnered with film directors, Tony and Ridley Scott, to create a TV show featuring highlights of Modern Warfare 3 game play. The program will be available on the 'Call of Duty Elite' network, another initiative from Activision.

The network is a $50 a year online social network. It did stumble a bit out of the starting gate due to glitches brought on by high demand. That's a good thing!

And so is the more than 1 million users who signed up for the network in the first week. With even more programming planned for the network, it will give Activision a solid new revenue stream.

This is an important step for the company. As Activision's CEO Bobby Kotick said, “This is an important evolution of our medium.”

Activision's main competitor Electronic Arts (Nasdaq: ERTS), with its own recent blockbuster title Battlefield 3, is also moving forward. It is moving aggressively into the social media space to expand its business.

The company has two of the top 10 games on Facebook (Activision has none). Electronic Arts also bought a major social gaming company, Playfish, back in 2009. Another social gaming company, Zynga (Nasdaq: ZNGA), recently raised $1 billion in a popular IPO.

Electronic Arts' stock has outperformed Activison's over the past year – up about 30% versus little change for the analyst-disliked Activision.

Look for both Electronic Arts and Activision to do well in the coming year. The negative analysts will find these companies as hard to 'kill' as some of the characters in their games.

Article originally written for the Motley Fool Blog Network. Check all my Motley Fool posts at http://blogs.fool.com/tdalmoe/

The Outlook for Oil Prices in 2012

2012-01-09T13:31:00.001-05:00

2011 was a relatively stable year for oil prices. Brent crude oil traded in a narrow band all year between $100 and $120 a barrel. But 2012 may be a very different year with traders bracing themselves for a much rougher ride.

The base case scenario is for oil to remain at about $100 a barrel in 2012. This is founded on relatively healthy oil demand growth of about 1 million to 1.2 million barrels a day in 2012. This outlook also is based on OPEC maintaining its output at the current 3-year high of around 30 million barrels a day and the end of supply disruptions that troubled the oil market in places like Libya.

And indeed, at its recent meeting, OPEC did set a target for output at 30 million barrels a day.

However, despite the apparent calmness in the oil market, there is currently an extreme difference of opinions between the bulls and the bears on oil prices in 2012.

There are traders on opposite sides of the market who are buying large amounts of out-of-the-money oil futures option contracts that would profit from both a collapse in oil prices and a super-spike. These traders are betting on low probability events – either a rise to $150 a barrel for oil caused by Middle East unrest or a drop to $50 a barrel brought about by a eurozone collapse.

The key benchmark Brent crude oil contract is now trading for approximately $108 a barrel.

Although there are bets occurring on both sides, recent options buying on the New York Mercantile Exchange has been skewed toward an upward spike for oil based on risks coming from a possible European Union embargo on Iranian oil.

Since October, many trading firms have noticed persistent interest in call options for prices ranging from $120 to $180 a barrel. The number of options contracts purchased betting on a move for oil to $130-$155 a barrel by the end of 2012 has risen more than 25% over the past six months to more than 93,500 contracts.

These buyers perceive greater geopolitical risk than just the situation with Iran and its nuclear program. There is also the threat of regional war if Syria were to collapse or even a turn for the worse politically in Egypt or Libya.

Finally, there is even the risk that political turmoil in Russia surrounding the presidential election in March may disrupt output from the world's second-biggest oil producer.

But the bears have their reasons too. They say a eurozone collapse will trigger a worldwide recession that cuts oil demand sharply. The global financial crisis of 2008-09 did see two consecutive years of falling consumption for the first time since the 1980s. This did drive oil prices briefly below $40 a barrel, forcing OPEC to cut production.

Bears also point to a hoped for increase in Iraqi oil production of at least 500,000 barrels by the middle of 2012 as well increased U.S. shale oil production from North Dakota and Texas.

Both bulls and bears could be right depending on if one of these 'low probability' events comes to pass. Either way, 2012 looks to be a far more interesting year for the oil market than 2011 was.

Individual investors can join in with professionals on trading the perceived upcoming volatility in oil prices through the use of exchange traded funds.

Some of ETFs available for purchase include: United States Oil Fund (NYSE: USO), United States Brent Oil Fund (NYSE: BNO) and United States Short Oil Fund (NYSE: DNO).

Article originally written for the Motley Fool Blog Network. Check out my articles there at: http://blogs.fool.com/tralmoe/

Shale Boom in Argentina

2012-01-04T14:08:00.000-05:00

Many investors are aware of the current shale oil and gas boom in the United States brought about by the use of fracking technology.

What investors may not be aware of though is that this technology is now beginning to used all around the world. One example which was in the headlines recently is Argentina.

That country has some of the largest and highest quality reserves of shale oil and gas. This year, the U.S. Energy Information Agency ranked Argentina third globally in terms of technically recoverable shale gas reserves with 7.74 trillion cubic feet of gas. This total is behind only China and the U.S.

The company at the forefront of shale discoveries in Argentina is the former state-owned oil company YPF SA ADR (NYSE: YPF), which is 57.43% owned by Spain's Repsol YPF SA.

YPF is eying another 1 billion barrel discovery which is adjacent to a field in the Vaca Muerta formation, located in Patagonia, which was found to have reserves six times bigger than original estimates at 927 million barrels. Vaca Muerta compares very favorably to U.S. shale formations. It is three times as deep as Eagle Ford in Texas and its yields may be double.

The company said the hydrocarbons found there were about three-quarters oil and one-quarter gas. The 927 million barrel estimate from YPF is a very conservative one which says only 4 percent of all the hydrocarbons will be extracted.

On top of that, there may be a lot more shale oil and gas to be discovered since YPF has explored only a 502 square kilometer area out of the total 12,000 square kilometer area so far. In 2012, the company plans to spend at least $87 million drilling in the area.

A flood of companies have launched exploration programs in Argentina over the past six months. These companies include many large global firms with experience in shale hydrocarbons such as ExxonMobil (NYSE: XOM), Total SA ADR (NYSE: TOT), Apache (NYSE: APA) and EOG Resources (NYSE: EOG).

Energy industry leaders in Argentina believe the country can follow in the footsteps of the United States and turn the energy industry from a state of decline into a boom.

The energy industry in Argentina has definitely been on a downward slope. For example, the country expects to import a record 80 cargoes of LNG (liquified natural gas) in 2012, a 20% increase from this year.

But for a shale boom to proceed Argentina must overcome some obstacles.

First, oil and gas prices are regulated in Argentina. The government has kept prices so artificially low that investment is discouraged.

Royalties are also low in comparison to other energy-rich countries. The good news here is that the government is offering higher prices for shale oil and gas under the Gas Plus and Oil program which offers better conditions for the industry.

Finally, labor relations stink. There have been a number of strikes by oil workers. This needs to improve before Argentina can enjoy a shale boom.

However, as evidenced by the Gas Plus and Oil program, Argentina finally seems to be moving in the right direction. If it continues along this path, YPF is sure to be the prime beneficiary.

Article originally written for Motley Fool - http://blogs.fool.com/tdalmoe/

A Different Way to Invest in Gold

2011-12-27T16:38:00.000-05:00

When people think about investing in gold, they think of the traditional methods. These methods include gold bullion and coins along with gold stocks, funds and exchange traded funds.
There is another way to invest in gold that is rarely though about...that is investing into emerging market economies with large gold mining sectors.

The countries where the gold mining industry makes the biggest contribution to GDP are not places where you may think of like South Africa. But it is smaller countries such as Mali and New Guinea where gold a big part of the nation's GDP. Other countries where gold mining contributes a decent percentage of GDP include Tanzania, Ghana, Uzbekistan and Peru.

In Tanzania, for example, the value of gold exports has tripled over the past five years to $1.5 billion. And this is due solely to rising gold prices.

Of course, to further benefit from the expansion of the gold mining industry, these frontier market countries will need to continue stabilizing their politics and also put in more incentives, such as tax breaks, for overseas mining companies to establish operations in their country.

Since these are frontier markets investors may wonder to invest into their gold mining sector. The best way to do that is through gold mining companies which are heavily exposed to these countries.

One example is AngloGold Ashanti ADR(NYSE: AU) which has invested in Ghana, Mali, Tanzania and Guinea in the past few years. It also started exploration activities in Gabon and the Congo.

Another company to consider is Harmony Gold Mining ADR (NYSE: HMY) which has expanded its exploration activity in Guinea extensively.

Finally, Kinross Gold (NYSE: KGC) has expanded its operations greatly in West African nations.

Investors should keep in mind that in addition to the risk that gold prices will fall, there is still a large political risk in many of these countries. So investors may want to scale in to their positions.

Apple and Google Score in the Holiday Season

2011-12-22T12:57:00.000-05:00

The battle in the smartphone market during the Christmas season seems to have come down to a two-horse race between the iPhone from Apple (Nasdaq: AAPL) and smartphones with the Android operating system developed by Google (Nasdaq: GOOG).

In the third quarter of 2011, the number of Android-powered smartphones knocked the iPhone into second place overall with Korea's Samsung overtaking Apple to become the world's largest seller of smartphones.

However, analysts have expected Apple to bounce back smartly in the fourth quarter following the launch of its iPhone 4S in October. And the analysts may be right. In the U.S., the iPhone 4S has been the best selling phone in the run-up to the Christmas holiday.

The success of the iPhone and Samsung's line of Android-powered smartphones seems to have pushed aside the competitors this holiday season. Competitors such as HTC and Research in Motion (Nasdaq: RIMM) have warned of very weak holiday sales.

An analyst an Bernstein, Pierre Ferragu, said this about Apple and Android-based smartphones: “We now have a strong conviction that the two ecosystems won't leave much room for any alternatives.”

It remains to be seen though whether this will continue to be true in the months ahead.

The New Safe Haven Investment - Diamonds

2011-12-15T14:07:00.000-05:00

Not only are diamonds a girl's best friend, but they may also be a friend to investors looking for a safe haven from market storms.

The supply and demand scenario for diamonds offers a scenario which points to higher prices.

On the demand side, wealthy Chinese and Indian consumers as well as those from the Middle East have lit a fuse under the diamond market.

Last year, Gareth Penny, the CEO of the leading diamond company DeBeers, spoke about Chinese demand: “If you look back 20 years, there was no diamond acquisition culture in China. But today in Beijing, Shanghai, and Guangzhou, there is an obvious launch pad. 40% of brides in those cities are getting diamond engagement rings. It was zero 15 years ago."

Now consider the supply side of the equation. There have been no new discoveries of large diamond mines for more than a decade. And even if one was found, developing a new mine takes 10 to 12 years.

Diamond prices have already jumped in the past year fueled by Asian demand. The value of top quality polished diamonds of 5 carats have risen to roughly $150,000 a carat, up from the $100,000-$120,000 range of a year ago.

No wonder then that DeBeers, which is owned by Anglo American, said its earned more from its diamonds in the first six months of 2011 than in any previous six month period.

Another factor to consider is that diamonds are still cheap, with prices still well below their inflation-adjusted 1980s peak.

So if one believes in the bullish scenario for diamonds, how can an investor get in on it. Besides buying a diamond for someone special, there is one pure play in the stock market on diamonds.

It is a company called Harry Winston Diamond (NYSE: HWD). The company owns a 40% interest in the Diavik Diamond Mine in Canada. It is also a luxury retailer known as a premier diamond jeweler with many locations in emerging markets.

Arab Spring Drives Up Oil Prices

2011-12-09T13:09:00.000-05:00

The United Arab Emirates' oil minister, Mohammed Al Hamli. recently defined a “reasonable” price for as oil as between $80 and $100 a barrel. This is quite a jump up from just five years ago when OPEC oil ministers said that a “reasonable” price for oil was about $50 a barrel.

But a look at the price that Middle East countries need to survive economically today explains why oil ministers are now targeting such higher prices.

Not long ago the International Monetary Fund provided a timely update on the so-called 'breakeven price' for oil needed by Middle East producers to balance their fiscal budgets.

In the IMF's latest semi-annual “Regional Economic Outlook: Middle East and Central Asia” report, it estimates that the breakeven oil price for the UAE has now risen about $80 a barrel, up from $60 a barrel in 2008.

For Saudi Arabia, the IMF estimates that $80 a barrel is the breakeven price, up nearly $30 a barrel in just three years.

Part of this increase in the breakeven price can be explained by the sharp increase in spending earlier this year in response to the 'Arab Spring'.

But even before 'Arab Spring', budgets in Middle East countries were ballooning nearly out of control as governments try to deal with little non-oil revenues, rapid population growth and a very generous welfare system where governments pay almost everything for their citizens. These include payments for utilities, fuel, education, housing and health.

The rapid rise in breakeven oil prices means that key members of OPEC now have a strong incentive to defend much higher prices.

It also means that Middle East countries are unlikely to spend any large amounts of money in building spare oil production capacity. This is simply no money in their budgets for such undertakings.

The bottom line for investors and consumers is that oil prices would be extremely unlikely to below $80 a barrel for more than a brief period of time.

This is obviously bullish for oil. Investors can participate easily through the use of an exchange traded fund. The ETF which best reflects global oil prices the United States Brent Oil Fund (NYSE: BNO).

The Importance of Angola to the Oil Market

2011-12-07T13:10:00.000-05:00

Libya has been at the forefront of oil investors for much of the year. The nation of Angola has also been a source of supply disruptions in 2011, helping push crude oil prices higher.

Angola has been a true success story. Over the last decade, it more than doubled its production. Output rose from 750,000 barrels a day in 2001 to a peak of nearly 2 million barrels a day in January 2010.

The bad news for the global oil market is that the west African country, which joined OPEC in 2007, has seen its output fall significantly this year.

In 2010, Angola pumped an average of 1.85 million barrels of oil per day. But in 2011, it has managed to pump out just an average of 1.65 million barrels a day of oil.

Investors may shrug their shoulders and say 'so what?'. After global oil production is roughly 87 million barrels a day and Angola producers about 2 percent of that total.

However, Angola is far more important to the global oil market than appears at first glance.

Angola pumps a particularly low-sulfur crude, which is highly sought after by Chinese and Indian refineries to produce high quality gasoline and diesel.

China bought about 45 percent of the country's oil production last year. The United States and India are the next two biggest buyers, accounting for another third of Angola's oil exports.

So the global oil market has looked with interest as Angola's oil production stalled due to a lack of new projects and glitches in several existing oil fields. There were technical problems (water injection among others) in the Saxi-Batuque field operated by ExxonMobil (NYSE:BP) and the Greater Plutino field operated by BP PLC ADR (NYSE: BP).

The good news now is that the production problems are being solved. In addition, new oil fields are coming onstream.

The Plazflor field, operated by France's Total SA ADR (NYSE: TOT), will add 200,000 barrels of output while several projects from BP will bring another 150,000 barrels online. Additionally, Exxon's Kizomba-D cluster fields will add on another 150,000 barrels a day.

In total, Angolan production capacity should recover by 400,000 barrels a day year-on-year, alleviating some pressure off high oil prices which is good news for consumers.

The Whys of Drug Shortages

2011-12-01T10:49:00.000-05:00

There is an event going on the pharmaceutical sector which could put lives at risk...but it's not what you may first think.

It's not drugs being recalled for causing dangerous side effects. What is happening is an actual record shortage of much-needed medicines.

Pharmacists Are Worried

The American Society of Health-System Pharmacists said last year its members could not obtain an unprecedented 211 prescription drugs through the usual channels. The Society also reported more than 89 shortages of products in the first three months of this year alone.

The organization convened a national conference on the issue last November and has devoted a special section of its website – www.ashp.org – to drug shortages.

Cynthia Reilly, director of its practice development division, reflects widespread concern among pharmacists. She said, “The clinical impact is significant, with the potential for morbidity and mortality.”

She says pharmacists are spending many hours managing drug shortages and conducting inventory work rather than looking after patients. She also warns that even when alternative treatments are available, they are not always the most appropriate and could lead to dosing and other errors.

Separately, figures from the Food and Drug Administration show a surge in “stock-outs” with 178 drugs in short supply in 2010. This compares to only 65 drugs in 2005.

The growing number of “stock-outs” has sparked rising concern in the healthcare sector for good reason.

Shortages of Critical Drugs

Most of the medicines experiencing shortages are are for generic, off-patent medicines. But they do include some of the most important life-saving therapies, such as drugs to treat acute leukemia and bone marrow cancer.

Dr. Richard Schilsky, chief of oncology at the University of Chicago Medical Center, was the former head of the American Society of Clinical Oncology. He said, “For some of these drugs there is no substitute.”

Yet a growing number of patients in the United States are indeed experiencing problems, sometimes with life-threatening consequences.

One such example occurred due to production problems at Genzyme's Boston plant for its patented 'orphan drug' Fabrazyme. This drug is used treat the rare genetic disorder Fabry's disease. Genzyme was recently bought out by Sanofi-Aventis ADR (NYSE: SNY).

What is behind these shortages of needed drugs? It is being partly driven by intensifying industry consolidation, with a lot of merger and acquisition activity in the sector. This has reduced the number of suppliers and spurred cost control efforts.

These newly-merged companies are simply disengaging because of a lack of profit in producing these drugs.

Coupled with pricing pressure on medicines, some manufacturers have preferred to cease production of those drugs with low margins produced in low volumes.

Another factor is the globalization of the pharmaceutical supply chain. The rise of producers in places like India and China has added further to pricing pressures, as well as a shift to “just in time” production. Ms. Reilly of ASHP commented on this situation, “There is no buffer stock any more, so [pharmacies] don't even have a week's supply of drugs.”

Of course, there is regulation. Mike Benedict, pharmacy director at the Denver Health Medical Center, pointed to drug regulatory shutdowns of manufacturing centers. This, he says, leaves hospitals to stockpile drugs for injections and turning to secondary wholesalers who charge more for medicines they know are in short supply.

Calls for Reform

These shortages of medicine have sparked calls for wide-ranging reform. These reforms include calls for tougher powers given to be given to the FDA and intensified voluntary efforts by generic drug manufacturers to tackle the drug shortfalls.

There have also been calls for fresh financial incentives to ensure adequate provision of older medicines that are in short supply. Others have called for the lowering the regulatory costs of approving some medicines.

However, right now no one really seems to have the right answer.

Perhaps the best solution may be to give pharmaceutical companies incentives to again produce enough of these types of older drugs that are such a necessary part of many people's lives.

LNG Tanker Market Heats Up

2011-11-21T13:42:00.000-05:00

The market for LNG (liquefied natural gas) has heated up, thanks to demand from Japan, China and other Asian nations.

In addition, LNG has become more available with the opening of new export facilities in Qatar, the world's largest LNG exporter.

These two factors in combination have fired up the market for the LNG tankers which transport the gas all over the globe.

This was once a sleepy market with long-term 20 year contracts tying up ships with little profit for the ship owners. No surprise then that about 30 percent of the fleet was sitting idle just two years ago.

But now things have changed...more and more of the ships, especially the new LNG carriers, are being leased on the short-term or spot market.

Charter rates were languishing at a barely profitable $30,000 a day have recently surged to as high as $125,000 a day thanks to surging demand for these vessels. In fact, Swedish shipper Stena Bulk has calculated that 90 to 95 percent of the world's roughly 360 LNG tankers would soon be in use

The CEO of another tanker operator, Norway's Hoegh LNG, said the market was likely to remain “very tight” until 2013 or 2014. And after that the completion of export facilities, such as in Australia, will require still more ships.

Andreas Sohmen-Pao, CEO of BW Gas – owner of the world's biggest LNG fleets – agrees. He said the market will expand even further if the United States started to export significant amounts of its natural gas supply.

By the way, the UK's BG Group last month signed the first contract to export LNG from the United States, once the first export liquefaction terminal is ready in 2015.

This boom in the LNG market is all good news for the LNG carrier companies which are publicly traded here in the U.S. These companies are: Golar LNG Ltd. (NASDAQ: GLNG) and Teekay LNG Partners L.P. (NYSE: TGP).

Central Bank Buying of Gold at 40-Year High

2011-11-17T13:42:00.000-05:00

It really is saying something when the purveyors of the world's paper currencies – the world's central banks – are busily buying gold at a nearly unprecedented rate.

They seem to not believe in their own product – paper money.

The stunning headline, from the World Gold Council, is that central bank gold buying is at a 40-year high.

Central banks only became net buyers of gold last year after two decades of heavy selling.

Central banks made their largest purchases of gold – a net 148.4 million tons – in decades in the third quarter of 2011. The banks took advantage of a sharp drop in gold prices in September.

The World Gold Council declined to identify the central banks doing the buying. It said only that “a slew of new entrants emerged wishing to bolster gold holdings”. You can bet that most of the new entrants were emerging market central banks looking to diversify away from the U.S. dollar.

Marcus Grubb, head of investment at the World Gold Council, forecast that central bank buying for the full year could be 450 million tons. This implies a further 90 million tons will be purchased in the fourth quarter of 2011.

Do not be surprised if the total purchased for the year comes to 500 million tons. The people in the emerging markets are not fools...they see the how the U.S. and European economies are “burning” while the politicians are “fiddling”.

In addition to buying physical gold (the best method), investors can also exposure to gold through the use of exchange traded funds (ETFs) such as the ETFS Gold Trust (NYSE: SGOL).

Iran Pushing Oil Prices Higher

2011-11-14T09:16:00.000-05:00

It's been deja vu lately for the oil market as fear factors regarding Iran have returned.

Iran is very important to global oil markets as it is the world's third biggest exporter of black gold after Saudi Arabia and Russia. Last year, the country sold an average of 2.6 million barrels of oil a day, mainly to the Asian countries of Japan, China and India.

The price of Brent crude oil, the global benchmark, has rallied to almost $115 a barrel as tensions rise in the nuclear triangle between Iran, Israel and the United States.

Of course, there are factors at play here besides Iran which is pushing prices higher. These other factors include continued supply disruptions from Libya, Yemen and Syria along with sharply lower oil inventories in Europe (the lowest level in almost 9 years).

This combination of tight fundamentals and rising geopolitical tension has driven up oil prices more than 16 percent from the eight-month low set in early October at $99.70 for Brent crude oil.

The geopolitical tension comes from the fact that Iran controls the Strait of Hormuz, the gateway for Middle East oil where 15.5 million barrels a day passes through. That is equivalent to a third of all seaborne traded oil.

The Strait has added significance because all the world's spare production capacity is in Saudi Arabia, the United Arab Emirates and Kuwait. All of these countries ship their oil through the Strait.

If the Strait of Hormuz is shut down, even briefly, oil prices would skyrocket. Independent energy consultant Philip Verleger says “It is the $200-a-barrel scenario.”

Investors can protect themselves several ways against such a scenario such as buying companies with large exposure to oil from other regions of the globe. Statoil ADR (NYSE: STO) and Petrobras ADR (NYSE: PBR) come to mind.

Another way to play it is through an exchange traded fund (ETF) based on the Brent oil futures contract. It is the United States Brent Oil Fund (NYSE: BNO) and is up 25% year-to-date.

Cash Cow for Media Companies - Netflix

2011-11-10T16:40:00.000-05:00

Not long ago, media companies were wondering whether Netflix (NASDAQ: NFLX) was going to be disruptive to their traditional models.

It turns out that Netflix was not and, in fact, turned into a cash cow for the industry. But now the question is for how much longer will it remain so.

Three media firms - CBS (NYSE: CBS), Time Warner (NYSE: TWX) and Discovery Communications (NASDAQ: DISCA) – reported strong quarterly results last week. All three companies said it was benefiting from a windfall of cash from online video services such as Netflix, Hulu and Amazon (NASDAQ: AMZN).

These three digital distributors are battling for market share now and ahead of the entry into the market by both Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG). So each company is aiming to set itself apart from the competition by spending large amounts of money for the rights to stream popular movies and TV shows and even older “library content”.

This new source of revenue represents a very lucrative third revenue stream for media companies, supplementing advertising along with cable and satellite operators.

Nomura analyst Michael Nathanson called Netflix “the gift that keeps giving” and summed up the situation this way, “Netflix has been a friendly contributor to everyone's year.”

That is great for shareholders of media companies, but not so good for Netflix shareholders as they have found out recently with the stock falling some 70 percent.

Especially the deals reached with the media companies in many cases are not exclusive...the media companies have sold their content, in some cases, several times.

Add to that, the loss of 80,000 subscribers in Netflix's most recent quarter and a rational investor will see nothing but losses for the company in the quarters.

Like many other technology stocks, Netflix seems like a shooting star across the night sky whose light is quickly fading.