Monthly Archives: August 2011

Will Gaddafi’s Departure Change Oil Prices?

Shokri Ghanem

Shokri Ghanem

As Moamar Gaddafi flees towards his twilight, the Libyan strongman has left his country in a state of turmoil, yet unlike other war ravaged countries, Libya has tremendous potential in oil wealth.  Between 2006 and 2010 Libya was producing on average 1,789.155 to 1,809.577 barrels a day. Of course this output has been halted due to the war.  But when oil production resumes it will help lower the price of oil especial Brent crude. In the past most of the Libyan oil was sold to Europe.  With Europe taking a front and center role in the war, there is no surprise that they will and probably already have struck deal with the rebels.  The question is how long it will take for oil production to reach pre-war levels.

“It will not be easy to start again at the same level,” Shokri Ghanem told Reuters Monday. “I think it will take a few months to come back to production, but to come back to the level of production that we used to produce it will take some time, maybe a year and a half.”

The real challenge will be to establish an emergency government to restore some sens of order to Libya. “They will probably enter a democratic process, but it will take a long time because they are not really prepared. They had no experience over the last 40 years with any type of parliamentarianism or democracy,” said Martin Hvidt, who derves as a Middle East analyst at the University Of Southern Denmark. “The danger would be that you would have an extended period when it is not clear who will be in charge.”

If that is the case it could take longer for the oil to come back on line causing an economically precarious situation in Europe to get that much more shaky.

Buy the Low Hanging Fruit

There are a lot of calls from investors to pick up some “low hanging fruit” in the market. While its true that you can find some potentially valuable stocks for cheap, there may also be a lot of duds.  The trick is to sift through and see if a stock is unnaturally low and will rise again or the correction placed that stock in the right position.    The best case is to find stocks that have shown tremendous earning potential that are still priced at a reasonable level.  Of course this is no easy task.

What to Buy

One hot pick is  Arena Pharmaceuticals (ARNA) co founded by Jack Lief and Dominic P. Behan, PHD. Right now the stock is priced at a cheap 1.33 and it has been as high as 7.55 this past year. There is not reason to doubt that the stock will climb a lot higher since the company made 59.90% in revenue growth last year.  This company has massive potential in the long run and anyone in it right now will stand to make a lot of money. Arena Pharmaceuticals focuses on weighloss issues.  With more of the world heading towards obesity, this will increasingly be an important issue.

Market Set To Open, But Economic Jitters Remain

With Irene having passed through the North East, Wall Street is set to reopen its doors.  Everyone can breathe a sigh of relief and quiet moment of thanks that there was not more damage, but the US economy seems to be slowing  none the less. The most significant indicators pointing to a possible double dip recession include a contracting GDP, chronic unemployment, and stalled manufacturing. These issues are not going away any time soon and with a dead locked congress unable to offer a any hope out of the economic quagmire the economy is in, the only way out seems to be for some sort of Fed intervention along the line of QE3, but the Fed is nervous since their bond buying scheme has come under scrutiny from even the most Fed friendly investors.

Still Good Investments to Make

Some investments to consider are playing long with anything to do with Apple. Yes, the stock jumped back up Friday after a little dip connected to Steve Jobs’ resignation, but in the long term Apple will only expand, especially after the iPhone 5 is released.  This goes for other companies that are in the process of striking deals with Apple to sell the iPhone in emerging markets, like China Telecom (CHL) and China Mobile (CHA) as well as Indian firm Tata Telecom.

Another Indian company Tata Communications Limited (TCL) is a good buy at 8.21.  This price is sure to rise as this company expands as it has been doing.  Tata Communications specializes in mobile and communications development.  It was behind the development of many popular iPhone apps like TrueRoots, a one touch dial service.

Airlines Flying Low

Due to Hurricane Irene, airlines have canceled about 9,000 flights all along the eastern seaboard, north of North Carolina. I don’t believe that the economic effects of this will be significant to the airline industry because travelers will still have to get home so they will fly a day or two later.

But what is the bigger picture of the airlines. AMR Corporation (AMR) operates American Airlines and its stock price has gone down from a high of 40.66 in 2007 to 3.26 in today’s trading which is about 9% of the 2007 price. Since July 2010 it has gone down from 6.93 to 3.26 losing about 50% of its value.

Delta Air Lines Inc. (DAL) has followed a similar stock price pattern but is less extreme. At the end of 2007 to the stock was trading at about 20 and it is now trading at 7.12 about 32% of its 2007 price. Since July 2010, the stock has dropped from 12.2 to 7.12, losing 41%.

Finally United Continental Holdings, Inc. (UAL) was at 35.75 at the end of 2007 and today is trading at 17.92, maintaining 51% of its 2007 price. However, and this is the important figure, in July 2010 UAL was trading at 23 and today it is trading at 17.92, a drop of a mere 22%.

We see that the profits in the airline industry are going down across the board. Part of this is no doubt because of declining economic conditions. People have less money and the first thing to cut is leisure airline travel. However, when the economy stabilizes, and I believe that it will at some point, UAL will definitely be the preferred option.

UAL is managed by Jeff Smisek who is the Chief Executive Officer. Jim Compton is the Chief Revenue Officer. Zane Rowe is the Chief Financial Officer.

Buffett No Altruist

Hurricane Irene and Stock Market Sell Offs

In today’s world you never know how bizarre it could get.  Like some unforseen hand directing our country to catastrophe Hurricane Irene seems to be heading into downtown NYC before the morning bell on Monday.  Already investors have been uneasy about Ben Bernanke’s empty words coming this Friday.  Increased joblessness rates didn’t help and counteracted Buffet’s play for Bank of America (BAC).  Psychology is a large part investing and the psychology right now is not good and that is why the sell off is sure to continue if not quicken in pace.

Whether or not Hurricane Irene strikes NYC head on the damages could very well end up in the billions and that alone could be devastating to the economy and the market.  This is the time to get out and sit on the side and wait until the storm subsides to reenter and invest again.

A Gold Mining Company Can Be Your Gold Mine!

Gold Verses Gold Mining Companies

Over the past five years gold has risen tremendously while gold mining companies have risen gradually or remained stable. While many analysts expect Gold to hit anywhere from $2,000 to $2,500 gold mining companies have either risen slowly or remained the same. What can we expect to see in the future?

While gold is temporarily easing due to a slight upturn of confidence, as long as the basic underlying problems are not being solved gold is likely to remain high. The next question is what about gold mining companies? What kind of investments are they? Investment aside let’s look at how the gold mining business model. A mining company either buys a gold mine or explores for gold mines. Once it has the mine the costs of extracting the metal are fairly low compared to the high price of Gold. Bingo, profits are ensured as long as the price of gold remains above the price of extraction. At high prices like today’s, gold mines are surely a safe haven without having to worry about the daily ups and downs of gold.

Royal Gold, Inc.

An example would be Royal Gold Inc (RGLD) Which since July 2007 had gone up from $23.77 to $70 a share. In addition, every quarter it has paid a dividend. Royal Gold, Inc. uses its subsidiaries, to purchase and operate precious metals royalties. The company owns royalty interests in exploration and production projects, which explore for gold, silver, lead, copper, and zinc metals. Royal Gold maintains royalty interests in properties in the United States, Argentina, Australia, Bolivia, Brazil, Burkina Faso, Canada, Chile, Colombia, the Dominican Republic, Finland, Ghana, Guatemala, Honduras, Mexico, Nicaragua, Peru, the Russia Federation, Spain, and Tunisia. Royal Gold is headquartered in Denver Colorado.

Tony Jensen is the CEO of Royal Gold, Inc. Previously Mr. Jensen worked with the Cortez Joint Venture and spent eighteen years with Placer Dome. Mr. Jensen holds a B.S. degree in Mining Engineering from South Dakota School of Mines and also holds a Certificate in Finance from Golden Gate University in San Francisco. Stefan L. Wenger is currently Chief Financial Officer of Royal Gold, Inc. Previously Mr. Wenger worked with PricewaterhouseCoopers where he provided audit and business advisory services to the mining and oil and gas industries. Mr. Wenger is a certified public accountant and a graduate of Colorado State University with a B.S. degree in Business Administration. He has completed the General Management Program at the Harvard Business School. Other officers include: Karen P. Gross, Vice President and Corporate Secretary, William Heissenbuttel, Vice President of Corporate Development, Bruce Kirchhoff, Esq., and William M. Zisch Vice President of Operations.

Bank of America: Is the Worst Over?

Yesterday’s trading saw a rebound in Bank of America (BAC).  The bank’s stock rose 11 per cent, or 69 cents, at $6.99.  So is the worst over?  Not quite.  Bank of America has been rumored to have a capital problem and the sell off that traders have witnessed didn’t just start a few days ago, but rather months ago.  Of course a reassurance of capital works, but without an open book policy, Bank of America will continue to suffer in the long term.  By not disclosing their funds then investors will continue to be suspicious if Bank of America is solvent or not.

Insolvent Banks Are the New Norm?

Although Bank of America seems to be holding on for now (if not we would all be in trouble), insolvencies seem to be increasing.  From the beginning of the year through August 19th, 85 banks were closed by the FDIC due to insolvency.  Below is the list through August 19th:

First Choice Bank, Geneva, IL., August 19, 2011
First Southern National Bank, Statesboro, GA., August 19, 2011
Lydian Private Bank, Palm Beach, FL., August 19, 2011
Public Savings Bank, Huntingdon Valley, PA., August 18, 2011
The First National Bank of Olathe, Olathe, KS., August 12, 2011
Bank of Whitman, Colfax, WA., August 5, 2011
Bank of Shorewood, Shorewood, IL., August 5, 2011
Integra Bank National Association, Evansville, IN., July 29, 2011
BankMeridian, N.A.. Columbia, SC., July 29, 2011
Virginia Business Bank. Richmond. VA., July 29, 2011
Saguache County Credit Union, CO., July 22, 2011
Bank of Choice,  Greeley, CO., July 22, 2011
LandMark Bank of Florida, Sarasota, FL., July 22, 2011
Southshore Community Bank, Apollo Beach, FL., July 22, 2011
Summit Bank, Prescott, AZ., July 15, 2011
First Peoples Bank, Port St. Lucie, FL., July 15, 2011
High Trust Bank, Stockbridge, GA., July 15, 2011
One Georgia Bank, Atlanta, GA., July 15, 2011
Vensure Federal Credit Union, Mesa, AZ., July 11, 2011
Signature Bank, Windsor, CO., July 8, 2011
Colorado Capital Bank, Castle Rock, CO., July 8, 2011
First Chicago Bank & Trust, Chicago, IL., July 8, 2011
O.U.R. Federal Credit Union, Eugene, OR., June 25, 2011
Borinquen Federal Credit Union, Philadelphia, PA., June 24, 2011
Mountain Heritage Bank, Clayton, GA., June 24, 2011
First Commercial Bank of Tampa Bay,Tampa,FL.,June 17, 2011
McIntosh State Bank, Jackson, GA., June 17, 2011
BCT Federal Credit Union, Binghamton, NY., June 10, 2011
Atlantic Bank and Trust, Charleston, SC., June 3, 2011
First Heritage Bank,Snohomish, WA., May 27, 2011
Summit Bank, Burlington, WA., May 20, 2011
First Georgia Banking Company, Franklin, GA., May 20, 2011
Atlantic Southern Bank, Macon, GA., May 20, 2011
Coastal Bank, Cocoa Beach, FL., May 6, 2011
Hmong American Federal Credit Union, St. Paul, MN., May 4, 2011
Valued Members Federal Credit Union, Jackson, MS., May 4, 2011
Utah Central Credit Union, Salt Lake City, UT., April 29, 2011
Community Central Bank, Mount Clemens, MI., April 29, 2011
The Park Avenue Bank, Valdosta, GA.,April 29, 2011
First Choice Community Bank, Dallas, GA., April 29, 2011
Cortez Community Bank, Brooksville, FL., April 29, 2011
First National Bank of Central Florida, Winter Park,FL.,April 29, 2011
Texans Credit Union, Richardson, TX., April 15, 2011
Vensure Federal Credit Union, Mesa, AZ., April 15, 2011
Heritage Banking Group, Carthage, MS., April 15, 2011
Rosemount National Bank, Rosemount, MN., April 15, 2011
Superior Bank, Birmingham, AL., April 15, 2011
Nexity Bank, Birmingham, AL., April 15, 2011
New Horizons Bank, East Ellijay, GA., April 15, 2011
Bartow County Bank, Cartersville, GA., April 15, 2011
Mission San Francisco Federal Credit Union, San Francisco, CA.,April 8, 2011
Nevada Commerce Bank, Las Vegas, NV., April 8, 2011
Western Springs National Bank and Trust, Western Springs, IL., April 8, 2011
The Bank of Commerce, Wood Dale, IL., March 25, 2011
Legacy Bank, Milwaukee, WI., March 11, 2011
First National Bank of Davis, Davis, OK., March 11, 2011
Land of Enchantment Federal Credit Union,Santa Fe, NM., March 7, 2011
Wisconsin Heights Credit Union, Ogema, WI., March 4, 2011
Valley Community Bank, St. Charles, IL., February 25, 2011
NYC OTB Federal Credit Union, New York, NY., February 23, 2011
San Luis Trust Bank, FSB, San Luis Obispo, CA., February 18, 2011
Charter Oak Bank, Napa,  CA., February 18, 2011
Citizens Bank of Effingham, Springfield, GA., February 18, 2011
Habersham Bank, Clarkesville, GA., February 18, 2011
Greensburg Community Federal Credit Union,Greensburg, PA,, Feb.17, 2011
Family First Federal Credit Union, Orem, UT., February 15, 2011
Canyon National Bank, Palm Springs, CA., February 11, 2011
Badger State Bank, Cassville, WI., February 11, 2011
Peoples State Bank, Hamtramck, MI., February 11, 2011
Sunshine State Community Bank, Port Orange, FL., February 11, 2011
Oakland Municipal Credit Union, Oakland, CA., February 4, 2011
Community First Bank Chicago, Chicago, IL.,February 4, 2011
North Georgia Bank, Watkinsville, GA., February 4, 2011
American Trust Bank, Roswell, GA., February 4, 2011
First Community Bank, Taos, NM., January 28, 2011
FirsTier Bank, Louisville, CO., January 28, 2011
Evergreen State Bank, Stoughton, WI., January 28, 2011
The First State Bank, Camargo, OK., January 28, 2011
United Western Bank, Denver, CO., January 21, 2011
Bank of Asheville, Asheville, NC., January 21, 2011
CommunitySouth Bank & Trust, Easley, SC., January 21, 2011
Enterprise Banking Company, McDonough, GA., January 21, 2011
Oglethorpe Bank, Brunswick, GA., January 14, 2011
Legacy Bank, Scottsdale, AZ., Jan. 7, 2011
First Commercial Bank of Florida, Orlando, FL., Jan. 7, 2011

Jackson Hole May Put Us in a Deeper Hole

Investors are pinning their hopes on market salvation stemming from Bernanke’s address at Jackson Hole, Wyoming this Friday. Many people believe he will take the time to introduce QE3 since he used the same venue to introduce QE2 allowing markets to rise above their present levels.

“As the week progresses, all eyes will turn to the Kansas City Fed’s meeting for central bankers at Jackson Hole….Since Jackson Hole was the place where Bernanke signaled QE2 last year, markets will look for any signal of a QE3 this time around. Expect to hear a sober re-evaluation of the outlook – which is clearly far worse than the Fed has been expecting – and for Bernanke to lay out the Fed’s possible options and their pros and cons. These include cutting the interest rate on excess bank reserves, and of course QE3, which wouldn’t necessarily have to take the form of a fixed dollar amount, but could be implemented at a variable ‘as-needed’ pace. Since Bernanke has to bring the FOMC with him on any policy change, and since inflation is higher than when QE2 was launched, we doubt that Bernanke will be quite ready to fire the starting-gun for QE3 this week. But we think that it is on the way.”

– Patrick Newport and Nigel Gault, Global Insight

Nothing can be further from the truth. Whether Ben Bernanke uses this venue to obfuscate the severe financial predicament the USA finds itself in, QE3 is certainly not the salvation investors think it is.  The above quote can be found in the heads of many bullish investors, who still cling to the hope that the economies best days are ahead of it.  While that may be true, it sure doesn’t seem like it.  If Bernanke decides to enact some form of quantitative easing, the only beneficiary will be investors and that benefit will be short term.  As the dollar’s devaluation will likely increase under a new quantitative easing program, the market will eventually catch up like it is doing now to this sort of program.   The economy will buckle more and more as the Fed undertakes risky solutions only to please Wall Street.

Not All National Downgrades Are So Terrible

Its interesting to see that after Moody’s downgraded Japan’s credit rating the world did not fall apart. Asian markets were trading a little lower and the price of gold went up, with many people in Asia buying physical gold. The American markets did not react dramatically to the downgrade like they did to the American Downgrade. Why?

First of all, Japans debt is mainly internal Japanese debt so other nations are less worried about losing their money. America is indebted to other countries that stand to lose tremendous amounts if America defaults.

In addition, Japan has already suffered downgrades in the past, the first being in 1998 when it lost its triple A status: life goes on. For America it was the first time. Also, the American Economy has been in a rocky situation and has been getting worse for years. In 2008, the bubble burst. Since then, America has been in a slow recessionary decline and each new decline is more threatening. Also Japan owns a lot of American debt which hopefully it can retrieve if it should need money. In contrast, America is already heavily in debt without any signs of repayment in the near future.

Japan had been a more stable economy but the unpredictable tsunami and the earthquake’s damage to nuclear reactors caused sever economic damage.
Moody’s also blamed Japan’s political instability that makes it difficult to pursue consistent economic policies to control its debt. Japan is going to elections soon to vote for the sixth Japanese leader within five years.

In short, the financial markets seem to view Moody’s Japan downgrade as more of an internal issue. Its ramifications on the world will be less pronounced than America’s downgrade because the American downgrade was the result of an economy with a $16 trillion debt with no foreseeable repayment in sight.