InvestMacro Forex News

By CentralBankNews.info
    Australia’s central bank maintained its benchmark cash rate at 2.50 percent, as expected, and repeated its guidance from last month that “the most prudent course is likely to be a period of stability in interest rates.”
    

By OilPrice.com

The future of oil exploration lies in new technology–from massive data-processing supercomputers to 4D seismic to early-phase airborne spy technology that can pinpoint prospective reservoirs.

Oil and gas is getting bigger, deeper, faster and more efficient, with new technology chipping away at “peak oil” concerns. Hydraulic fracturing has caught mainstream attention, other high-tech developments in exploration and discovery have kept this ball rolling.

Oil majors are second only to the US Defense Department in terms of the use of supercomputing systems, which find sweet spots for drilling based on analog geology. These supercomputing systems analyze vast amounts of seismic imaging data collected by geologists using sound waves.

What’s changed most recently is the dimension: When the oil and gas industry first caught on to seismic data collection for exploration efforts, the capabilities were limited to 2-dimensional imaging. The next step was 3D, which gives a much more accurate picture of what’s down there.

The latest is the 4th dimension: Time, which allows explorers not only to determine the geological characteristics of a potential play, but also tells them how a reservoir is changing in real time. But all this is very expensive. And oilmen are zealous cost-cutters.

The next step in technology takes us off the ground and airborne—at a much cheaper cost—according to Jen Alic, a global intelligence and energy expert for OP Tactical.

The newest advancement in oil exploration is an early-phase aerial technology that can see what no other technology—including the latest 3D seismic imagery—can see, allowing explorers to pinpoint untapped reservoirs and unlock new profits, cheaper and faster.

“We’ve watched supercomputing and seismic improve for years. Our research into new airborne reservoir-pinpointing technology tells us that this is the next step in improving the bottom line in terms of exploration,” Alic said.

“In particular, we see how explorers could reduce expensive 3D seismic spending because they would have a much smaller area pinpointed for potential. Companies could save tens of millions of dollars.”

The new technology, developed by Calgary’s NXT Energy Solutions, has the ability to pinpoint prospective oil and gas reservoirs and to determine exactly what’s still there from a plane moving at 500 kilometers an hour at an altitude of 3,000 meters.

The Stress Field Detection (SFD) technology uses gravity to gather its oil and gas intelligence—it can tell different frequencies in the gravitational field deep underground.

Just like a stream is deflected by a big rock, SFD detects gravity disturbances due to subsurface stress and density variations. Porous rock filled with fluids has a very different density than surrounding solid rocks. Remember, gravity measurement is based on the density of materials. SFD detects subtle changes in earth’s gravitational field.

According to its developers, the SFD could save oil and gas companies up to 90% of their exploration cost by reducing the time spent searching for a reservoir and drilling into to it to determine whether there’s actually any oil and gas still there.

“Because it’s all done from the air, SFD doesn’t need on-the-ground permitting, and it covers vast acreage very quickly. It tells explorers exactly where to do their very expensive 3D seismic, greatly reducing the time and cost of getting accurate drilling information,” NXT Energy Solutions President and CEO George Liszicasz, told Oilprice.com in a recent interview.

Mexico’s state-owned oil company Pemex has already put the new technology to the test both onshore and offshore in the Gulf of Mexico, and was a repeat customer in 2012. They co-authored with NXT a white paper on their initial blind-test used of the survey technology.

At first, management targeted the technology to frontier areas where little seismic or well data existed. As an example, Pacific Rubiales Energy is using SFD technology in Colombia, where the terrain, and environmental concerns, make it difficult to obtain permits and determine where best to drill.

The technology was recently contracted in the United States for unconventional plays as well.

Source: http://oilprice.com/Energy/Energy-General/New-Spy-Technology-to-Spawn-Oil-Revolution.html

By. James Burgess of Oilprice.com

Source: Brian Sylvester of The Gold Report  (3/3/14)

http://www.theaureport.com/pub/na/michael-ballanger-junior-miners-rising-from-the-ashes

You didn’t really think that junior miners would languish forever, did you? Junior mining stocks are starting to make a careful climb from the depths after tax-loss selling in December. But some investors, beaten down as badly as mining stocks, are still hesitant. For those investors, Michael Ballanger, director of wealth management and a certified investment manager with Richardson GMP, has a nearly win-win strategy. In this interview with The Gold Report, Ballanger talks about his investment ideas for 2014 and a less-risky twist on the balanced portfolio.

The Gold Report: In retrospect, investors should have been short mining equities and exchange-traded funds (ETFs) in early 2013. You have the opposite view for 2014. Please outline your strategy for us.

Michael Ballanger: The physical bullion silver and gold markets bottomed in the middle of last year and we thought mining shares would catch a bid soon after the physical market turned. As it would turn out, the mining shares hit new lows in December as they were caught in tax-loss selling and rebalancing. That set up a generational buying opportunity.

Additionally, I’ve never seen such black bearish sentiment numbers for gold—and I’ve been in the business 38 years. In contrast, tech darlings like Facebook, Twitter and Netflix are trading at price-to-revenue levels that would take 30 years of optimum performance to come within these valuations. That is an opposite extreme of what’s happening in the metals.

In November, I came up with a strategy for 2014 that is a very conservative equal-weighting basis to short the S&P through the SPDR S&P 500 ETF Trust (SPY:NYSE.Arca), but to go long the Market Vectors Gold Miners ETF (GDX:NYSE.Arca). It didn’t really matter to me which way the S&P or the markets went—I would see outperformance of the miners.

TGR: And the biggest advantage of that trade is?

MB: It insulates from market risk. It’s a market-neutral strategy in a hyperinflationary spiral where stocks actually do quite well. You can never underestimate the replacement value of stocks in an inflationary spiral. Warren Buffett is a great example: When he got worried about inflation a few years back he bought a big stake in Burlington Northern Santa Fe. Why? Because rails on the ground are a hard asset.

TGR: You suggest there are two ways of controlling the risk in this particular trade. Take us through those.

MB: It goes back to physical bullion. We had a double-bottom at $1,180/ounce ($1,180/oz) on bullion in June and December. That level is the first risk control. If there is a two-day close with gold below $1,180/oz, the double-bottom has aborted and it’s a new down leg for bullion. You’ve got to exit the trade. The second risk control is related to portfolio management risk. Set a stop-loss point of 15%. If you violate that point, you’re gone.

TGR: You’ve been quoted as saying, “I tried several times in 2013 to pick the top via the VIX [volatility index] only to watch in amazement as that invisible hand saves stocks every single time they looked ready to correct.” The Federal Reserve recently lowered its monthly bond-buying program to $65 billion per month. How long can this go on?

MB: I’ve been monitoring investor sentiment numbers in Barron’s magazine since I was a young broker in 1983. If there are four or five weeks where sentiment is above 65% bullish, I’d know it was time to start being conservative, raising cash. Last year, there were six consecutive months ABOVE 70%.

How long do I think this can last? It can last until the market decides that it’s not working anymore, which I believe is going to be 2014.

But the magic hand still continues. It’s called the Plunge Protection Team—the working group on capital markets established under President Ronald Reagan in the 1980s. After the crash of 1987, the government put together a group to prevent market crashes, which is against the free market philosophy that I’ve lived all my life. It has continually—day in, day out—made sure that that market stayed well bid. I have never seen a market that has hugged the 50- and 200-day moving averages with such amazing symmetry as it has 2013. It sets up the trade for January.

TGR: Juniors have performed well in January, a rebound from tax-loss selling season. Is it a seasonal bump or the turn of a corner?

MB: Juniors are turning a corner, but there is also a great seasonal effect. Look at the volume in the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.Arca) for November, December and January, compared to the last 18–24 months. There’s a great expression: Volume precedes price. Those volumes, evidenced by the Market Vectors Junior Gold Miners ETF, are massive. That spells big, sophisticated money entering a trade. This was taking profits out of the blue chips and moving it into the massively depressed miners.

If you ask me where we’re going to be at the end of the year, I think we entered into a new bull market in the junior mining sector in December at tax-loss selling. I think that bull market was artificially delayed by tax-loss selling and year-end portfolio rebalancing. I’m looking for an up for the junior miners—one that could be quite substantial—but one that demands selectivity and discipline.

TGR: What’s your advice on how to navigate the illiquidity of many gold and silver stocks?

MB: Clients that need to maintain liquidity in taking large positions should consider ETFs. They usually won’t have the $0.20 stock that goes to $3 or $4 because the junior mining company that gets included in an ETF is usually one that has already been recognized. Put the bulk of your assets in ETFs and reserve a little capital for one or two specific junior companies. It’s a rifle approach as opposed to a shotgun approach.

TGR: What are some juniors that you’re following?

MB: Rather than “follow” any particular name, for 2014 I have chosen to look at the junior miners in the context of sector versus specific company. And after a three-year, brutal bear market, the greater challenge will be to be proven correct in moving into the sector—period—rather then picking the individual name. Through the Market Vectors Junior Gold Miners ETF you own exposure to a basket of the most-advanced juniors while getting the liquidity of the ETF.

There are two companies that are currently recommended by our wealth managers. One isEldorado Gold Corp. (ELD:TSX; EGO:NYSE), trading around $7.35, which recently received a $40 million equity injection for a 20% interest in the Eastern Dragon mine in China. This removes the logjam that has impeded Eastern Dragons’ development and advancement. GMP’s analyst has a $12.25 target price in his Feb. 24 report.

The other is Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL) that trades around $2.30. With the release of the revised resource estimate of 1.08 million ounces for La Arena in Peru, the stock looks undervalued. GMP has a $4.90 target as of Feb. 24.

MB: After the three-year bear market, the good guys are coming out of the ashes. You’re going to be surprised how well some of these gold companies perform. Manage your portfolios so you have liquidity and diversification. The Market Vectors Junior Gold Miners ETF is an excellent way to put together a balanced portfolio in that area.

TGR: Is that your top pick for 2014?

MB: If I’m going to do an unhedged trade, 75% would be an equity combination of the Market Vectors Gold Miners ETF, which is the senior miners, and the Market Vectors Junior Gold Miners ETF, which is the junior miners, leaving 25% for other special situations.

TGR: Parting thoughts for us, Michael?

MB: As a wealth manager, my job is balance risk versus reward potential. The most important thing for 2014 is going to be risk management. It’s going to be a rollercoaster year if I’m correct in my assessment. Going long on miners and short on the S&P 500 is an excellent augmentation to the balanced portfolio approach.

TGR: Thanks, Michael. I’ve enjoyed speaking with you today.

Originally trained during the inflationary 1970s, Michael Ballanger, director of wealth management at Richardson GMP, is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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

DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Michael Ballanger: I or my family own shares of the following companies mentioned in this interview: Market Vectors Junior Gold Miners ETF. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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By Dan Steinhart, Managing Editor, The Casey Report

I was planning to explore the investment landscape of the burgeoning marijuana industry today, but it looks like the party’s already over.

Appearing before the Maryland Legislature, Annapolis Police Chief Michael Pristoop testified that 37 people died in Colorado on the first day of legalization from overdosing on marijuana.

What a damn shame. With morbid stats like that, the government can’t possibly allow the legalization trend to proceed any further. People’s lives are at stake!

Except they’re not. Chief Pristoop got those stats from a tongue-in-cheek story in The Daily Currant, a satirical newspaper à la The Onion. He believed it to be legitimate, so he cited it during testimony. Despite the fact that exactly zero people in history have died from overdosing on marijuana.

As you surely know, Colorado and Washington recently became the first states to legalize marijuana for recreational use, joining 18 other states that have legalized it for medical use only. Legalization is gaining steam across the US, and that’s unlikely to change—if only because, other than citing fake facts, opponents of legalization have no argument.

Opposition to legalizing marijuana is dwindling for the same reason that opposition to gay marriage is dwindling: there’s no intelligent reason to oppose either one. Unless, in the case of marijuana, you’re concerned with its potential to cause more car accidents. But if those are your standards, we should criminalize beer, cellphones, and makeup, too.

One thing’s for sure: the investment world is enamored with the idea of a brand-new green industry. As an illustration of exactly how hot this infant sector has become, take a look at this screen shot of an email received by a senior Casey Researcher this week. It’s a news release from a mining company, announcing its intent to “diversify” into the legal marijuana business:

An interesting business decision. I’m not sure what synergies exist between mining and marijuana, nor do I have any particular insight into how Next Gen’s management plans to enter the green business. But I applaud its forward thinking.

Apparently, so does the market. Here’s how Next Gen’s share price reacted to the announcement:

It soared over 300%, transforming from a penny stock into a dime stock in one day. Again, Next Gen didn’t grow earnings, discover a new gold deposit, or accomplish anything tangible. It tripled its valuation simply by announcing its entry into the marijuana business. That’s what I call a scorching industry.

So, should you put some speculative money into the hottest cannabis stock? Let’s take a quick tour around the burgeoning industry to get a picture of its investment prospects, focusing on five factors…

1) Profits Will Plummet

Had Al Capone been born in any other era, he would not have amassed a $100 million fortune. It was Prohibition that allowed him to earn extraordinary returns in the otherwise standard business of providing alcohol to people.

Likewise, legal purveyors aren’t going to earn anywhere near the spectacular returns that criminals enjoyed when marijuana was illegal. Drug distributors can become filthy rich because dealing drugs requires taking extraordinary risks. One misstep and you go to jail. Or worse, the rival Mexican cartel mows you down. That risk premium is why illegal drugs are so expensive, and why marijuana costs $300-400/oz in the US. But it won’t for long.

How can I be so sure? Because we already have a glimpse into the future. Uruguay legalized marijuana in December, and an ounce of the stuff costs $28 there, less than 10% of what it costs to obtain it the US.

It’s true that the Uruguayan government controls the marijuana industry tightly and set that $28/oz price. But the cost to produce marijuana there averages just $14/oz. So $28/oz is a reasonable guess as to where the price of marijuana would settle if the market were allowed to clear.

Going forward, profit margins won’t be nearly as fat as they were in the past.

2) The Government Will Be Heavily Involved

At least one guy will unquestionably make a killing from marijuana’s legalization. His initials are “U. S.,” and he wears a star-spangled hat.

We’re just two months into legalization, and taxes are already hefty. In Colorado, marijuana is subject to a 2.9% sales tax, plus a 10% tax on retail marijuana sales, plus a 15% excise tax based on the average wholesale price. Washington is no better—it plans to exact a 25% excise tax, plus an 8.75% sales tax.

All told, taxes in these early-adopting states will be in the neighborhood of 30%. And that’s before the feds get their cut (more on that momentarily). Further, taxes are the one exception to the rule, “What goes up must come down.” Someday, tokers might look back longingly at that 30%. After all, the average tax on a pack of cigarettes in the US is 42%.

Last, the marijuana industry isn’t going to be the Wild West. Colorado is working to control pretty much every aspect of the market, as evidenced by its 144-page marijuana Rule Book. You can be sure that other states will follow suit.

3) It’s Still Illegal

Though marijuana is now legal in two states, it’s still illegal under federal law. The Obama administration has said it won’t enforce marijuana prohibition in states that legalize it, as long as those states keep it under control. The federal government maintains the same position on medical marijuana, which, somewhat surprisingly, is also still illegal under federal law.

The feds are moving in the right direction, albeit slowly. Two weeks ago, the Treasury Department issued new rules that open the door for banks to do business with legal and licensed marijuana dispensaries.

Of course, once the feds do get on board, they’ll want a piece of the action. So be ready for even higher taxes.

4) Unsavory First Movers

It’s an unfortunate fact that, because the industry was just decriminalized recently, those best positioned to jump quickly into the marijuana business are those who were already in the marijuana business. In other words: people who were classified as criminals just two months ago.

Not that they were necessarily doing anything wrong by growing and distributing marijuana before it was legal. I’m sure plenty of growers and sellers are good people trying to earn a buck, just like those who grow and sell any other crop.

But as with any emerging industry, the first movers will be those who already possess an intimate knowledge of said industry. And in the case of marijuana, that means people who were running illegal businesses. So if you invest in their companies, you’re entrusting your capital to someone who’s willing to break the law.

As an investor, that should give you pause. Tread carefully, and dial your skepticism up to maximum.

5) Weak Candidates

The investment options in this infant industry are, understandably, limited. We’re a ways off from being able to buy a bushel of hemp on the futures exchange. If you want to invest, you’ll have to go with one of a handful of public companies. And unfortunately, none of them looks compelling.

The six companies in the chart below are the purest plays in the marijuana space. Their performance in 2014 is the stuff of legends—the worst performer gained 243% in the last three months:

But dig into their businesses and you’ll soon find that their value comes from their scientific-sounding names, and not from actually making money.

First, the companies are tiny and only trade on the illiquid over-the-counter markets. Before the share price run-up, only one, CannaVEST, had a market cap above $60 million.

What’s worse, most of them don’t have any revenue. And the ones that do generate revenue spend much more than they earn. Not that this is surprising—hardly any business could become profitable in just two months, so we won’t hold that against them. The problem is their valuations: CannaVEST is worth a staggering $1.8 billion today, and most of the others are all in the hundred-million range.

Let’s put it this way: if an entrepreneur walked into the Shark Tank seeking a $1.8 billion valuation for a company that doesn’t make money, Mark Cuban would laugh him out of the room. Speculative money already took these stocks to the moon. By buying one now, your only hope of profiting is for a greater fool to come along and buy it from you at a higher price.

As I see it, because of sky-high valuations, the risks in this blossoming industry far outweigh the potential reward, at least for a retail investor. I’m sure there are some fantastic private deals out there, and if you’re willing to press the flesh and meet some marijuan-trepreneurs yourself, you could make money.

But for non-full-time investors, you’ll want to watch this trend unfold from the sidelines, waiting for either (1) the speculative bubble to pop, so you can pick up some shares for fractions of a penny; or (2) a leader to emerge and demonstrate it can turn a profit.

Here’s a tip, though: If you’re looking for an investment with potentially spectacular gains, I would like to point you to another drug, this one perfectly legal once it’s FDA-approved. What I’m talking about is an impressive biotech startup my colleague Alex Daley, Casey’s chief technology investment strategist, has dug up.

The company is well on its way to launching a breakthrough Alzheimer’s treatment—which, if successful, is sure to be a game-changer for the medical industry. Clinical trial results are due out in early March, and should they be positive, the stock could easily double on the news… so right now is a great time to get in. Find out more about the company and its revolutionary product in this report.

By MoneyMorning.com.au

If you’re a medium- to long-term Money Morning reader you’ll know we’ve thumbed our nose at every so-called crisis for the past two years.

There have been a wide variety of crises too.

From interest rate crises, to currency crises, to political crises, to banking and emerging markets crises…you’ve seen them all.

But what you haven’t seen is the event that all these crises are supposed to result in – a wholesale crash in financial markets and an accompanying localised or global economic recession.

Could that change if the ‘Ukraine Crisis‘ turns out to be a much bigger one than anyone currently thinks?

Well, it’s got all the hallmarks of a crisis.

There’s the threat of war…the threat of sanctions…the threat of a debt default…the threat of energy supply disruptions…and the overall economic impact if these issues flow through to financial markets.

With all the so-called crises that have gone before, we’ve quickly dismissed them as not even a storm in a teacup – more like a breeze in a thimble. They were nothing.

But what about Russia making trouble in Ukraine? That’s got to be worth at least a short pause before we dismiss it out of hand.

It’s not the first time Russia has turned up on the opposing side to the West. Most people have doubtless already forgotten about the last international crisis that almost led to war – Syria.

That was Russia on one side and the United States on the other side.

The outcome? Erm, nothing of any consequence. Certainly nothing that has caused lasting damage to stock market valuations.

Some may say it’s inappropriate to talk about such things when the world is perhaps on the edge of another war. But isn’t that why you’re here? To find out the impact of these things on your wealth?

If you want war analysis, we’ll suggest you go and watch SBS or the ABC. Or even the supposed intelligence experts who pop up on CNBC and Bloomberg to bang on about that sort of thing. But us, we’ll stick to what we know: stocks.

Another Faux Crisis or Real Deal?

The world’s stock markets went into sell-off overdrive overnight.

The Euro Stoxx 50, an index of leading European stocks, fell 3%. The UK’s FTSE 100 index fell 1.5%. And the German DAX index fell 3.4%.

The Russian MICEX index slumped 10.8%.

The bad news carried over into the US markets, where the Dow Jones Industrial Average fell as much as 1.5% before recovering some of the lost ground in the afternoon.

Will this flow through to the Aussie market today? It’s possible. The question for Aussie investors is whether this is just another faux crisis, or if it’s the real deal.

It would be easy to lump the Ukraine crisis in with others such as Syria, Libya or even the recent but now forgotten Argentinian debt crisis. But it is fair to say that what’s going on in Ukraine is more important than those events from an economic standpoint…especially for Western Europe.

You should remember that Europe gets around a quarter of its natural gas supplies from Russia, via a pipeline that happens to go through Ukraine. So should a full-scale conflict break out between Russia and Ukraine it’s likely that the Russians would shut down this pipeline.

That’s potentially a real problem. However, as serious as it may be, markets have a funny habit of quickly solving problems. That’s why markets work. For instance, there are other potential pipeline routes that avoid Ukraine. It’s hard to imagine that Europe would refuse to accept Russia’s natural gas supplies even if Russia declared war on Ukraine.

So, is it time to panic?

This Isn’t The Crash They’re Looking For

There are some commentators out there who seem to talk out of both sides of their mouth. They’ll tell you something could be a real problem, and then when it all calms down they say they knew it would be fine all along.

Yeah, sure.

That’s not how we roll.

Sure, you should always take some precautions with your investments. That’s why for the past four years we’ve recommended that you have a healthy holding in cash and gold (by the way, the gold price has done pretty well the past few days).

But that’s something you should constantly monitor, not just when trouble brews up to the surface.

And when it comes to stocks, we’ve long said that most investors shouldn’t have more than 50% of their wealth tied up in a combination of growth and income stocks anyway. We don’t see any reason right now to change that advice.

Yes, you could see the Aussie market fall by 5% or so, as it did in January. But like then, we would see that as an opportunity to buy into unfairly beaten down growth and income stocks.

Bottom line: we’ll go on record again and say that there are far too many investors and so-called experts fighting to be the hero. They’re desperate to call the next full-scale market meltdown.

So far, they’re up to about their 30th attempt at picking it. They’ve got it wrong each time. The law of averages says they’ll get one right, but this just isn’t it.

Our advice is to use the opportunity (if it arises) to buy stocks from those senselessly selling in a blind panic.

Cheers,
Kris+

From the Port Phillip Publishing Library

Special Report: Three Aussie Miners Set to Lead the Resource Sector’s Epic Comeback

By MoneyMorning.com.au

By MoneyMorning.com.au

Last week, I explained the importance of managing your risk and buying at the right price, but this is only half the story when it comes to successful investing.

Not long ago, a subscriber to my resource investment newsletter Diggers & Drillers wrote to say:

‘The main issue for me is that stocks go up and come down, buying is a lot easier than selling. It would be great to get some idea as to DD’s strategy in selling.‘

You need to know when to sell.

This means that you have to have a sell strategy in mind from the get go, which also means managing your risk.

It may sound boring and repetitive but risk management is everything in the investing world – and yes, it involves knowing when to buy and sell.

The alternative, emotional investing, is never a good idea and often ends in heartbreak.

Let me give you a recent example of a sell recommendation to illustrate my point. When I came on board as the resource analyst for Diggers & Drillers last year, I immediately recommended a sell on Swala Oil & Gas [ASX:SWE].

At the time I issued the sell recommendation on Swala, I thought it was one of the most promising small-cap oil and gas companies on the ASX. So you may think it was a strange decision for me to issue a sell recommendation.

The thing is, as good as Swala’s Tanzanian story may seem, the biggest mistake any investor can make is to become emotional about a stock.

One of the greatest investors of all time, Roy Neuberger, figured out that the stock market is like the shoe business: you buy the shoes, you mark them up, and you sell them. You do not sit around holding them for decades. When a stock price goes up in price, you sell it.

Coming back to Swala, I came to the conclusion that for its current stage of development, the price had run too high. In other words, the risk of holding the stock outweighed the reward of selling it.

So at the time, I wrote to Diggers & Drillers readers,

‘Management says, ‘The 2014 work programme intends to add to the joint ventures understanding of the unexplored portions of the basin.

‘Reading between the lines, I take that to mean that the company will focus on running additional seismic surveys over the region. In fact, I wouldn’t be surprised if they spent most of 2014 trying to map the fault line and gain a better understanding of the geology.

‘This will cost the company time and money, but for any explorer it’s always better to be safe than sorry. The likely impact is that the company will need to go through additional capital raisings and that the share price will drift through 2014.‘

Now successful selling involves two characteristics:

1. Thinking logically – Swala has already done a lot of seismic but when it comes to drilling a well, you want to hit the juiciest spot. And this will require more evaluation, time and money. And on top of this, the company is focusing on numerous regions and projects – this means more time and money.
2. Be disciplined – based on the original entry price of 14.5 cents, it was time to lock in the gain of 127.5%.

It may even run further in the future, it may even come to a point that I would recommend buying it, but don’t make the mistake of getting sucked into the long term story because it sounds good.

That said, let’s go deeper into the Swala story.

Swala’s management later told the market that they ‘may need to raise capital later in 2014 if it decides to progress with the contingent work programme.‘

And more recently the company announced, ‘the work commitment in this next period includes additional seismic acquisition and the drilling of 1 exploration well in each of the two areas to be completed before the end of February 2016.‘

My thoughts remain: how will Swala fund these development programs and drill a well with less than $10 million in cash (as at December 31, 2013)?

Sure the share price may go up, but with these concerns I was more than happy to have my readers take a profit.

It’s better to take the money off the table and put it into a company that’s more sustainable and that will likely make you yet more money.

The true art of investing is taking your profits – don’t be afraid to do it. As the wise man says, ‘you can never go broke taking a profit’.

Whether to hold or sell a stock basically comes down to the following:

• Is the company growing at a reasonable and sustainable rate?
• Is management hitting their targets?
• What are the foreseeable capital investment requirements and are they manageable?
• Do the project economics continue to stack up?
• Is the share price significantly technically overvalued?

At the moment, all the companies on the Diggers and Drillers buy list stack up well. But this doesn’t mean my readers should rush in to buy them at any old price. We can’t forget about managing your risk when buying into the stocks, as I discussed last week. And as long as my readers buy in at the recommended buy-up-to prices and sell when my analysis says it’s the right time, they have a great chance at making solid gains.

Jason Stevenson+
Contributing Editor, Money Morning

Ed note: The above article is an edited extract from Diggers & Drillers.

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By MoneyMorning.com.au

United States ISM Non-Manufacturing PMI data is due at 15:00 GMT on Wednesday. High volatility is likely in the financial markets if the actual reading comes better or worse than expectations. EUR/USD is expected to be the most affected pair because Eurozone’s growth data is also due on the same day. A higher reading means there was expansion in the US services sector, the largest economic sector for the United States. This translates to a rise in the US stock market and strengthening of the US dollar.

Therefore, EUR/USD will likely be the most volatile pair on Wednesday. For the week, 1.3891 and 1.3524 are the two resistance and support levels, respectively, for the EUR/USD for this week. If Eurozone GDP comes in higher than expectations and US non-manufacturing PMI misses its forecast, then it could possibly prove to be a good strategy to buy EUR/USD at 1.3891.

Written by Daniel Elo, Independant Analyst for www.EconomicCalendar.com

By John Mauldin

 

John is in Florida and feeling a bit under the weather, so this week we’re bringing back one of his most popular letters, from December 2007. In the letter he discusses the work of Professor Graciela Chichilnisky of Columbia University, one of whose key insights is that the greater the number of connections within an economic network, the more the system is at risk. Given the current macroeconomic environment, it is important to remind ourselves of how complacent we were back in 2007 and how it all fell apart so quickly, just as John outlined in this rather prescient piece.

This is a theme to which John has returned again and again, pointing out that reforms such as Dodd-Frank (the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010) fell well short of solving the problem of excessive interconnectedness among global financial players. It shored up the big “sandpile” rather than breaking it up into smaller, more manageable sandpiles. Now, if the Chinese, Japanese, and/or European sides of the sandpile should avalanche, the whole US side is likely to go, too.

John will be back next week with a report from Washington DC and the next installment of his series on income inequality.

How does the risk of default in California or Thailand get spread throughout the world, causing problem in money market funds in Europe and Florida? Yes, we can trace the linkages now, but was it possible to predict the crisis beforehand? And can we use what we learn to predict and hopefully hedge ourselves from the next crisis? Why do these things seem to be happening with more frequency? This week we are going to look at some economic theories that will give us some insight into the above questions. As it turns out, the more that individuals hedge their risk in economic markets – the larger and more interconnected the network – the more the entire system is put at risk. There is a lot of ground to cover, so we will jump right in.

Before we get to the economic theory, let’s review part of a letter I wrote in April of 2006 discussing chaos theory, as it will give us a useful mind picture to understand the latter part of the letter. This was part of a letter in which I laid out my thought that we would indeed experience a future crisis along the lines we are now seeing.

We are going to start our explorations with excerpts from a very important book by Mark Buchanan called Ubiquity, Why Catastrophes Happen. I HIGHLY recommend it to those of you who, like me, are trying to understand the complexity of the markets. Not directly about investing, although he touches on it, it is about chaos theory, complexity theory, and critical states. It is written in a manner any layman can understand. There are no equations, just easy-to-grasp, well-written stories and analogies.

Ubiquity, Complexity Theory, and Sandpiles

We have all had the fun as kids of going to the beach and playing in the sand. Remember taking your plastic bucket and making sand piles? Slowly pouring the sand into ever bigger piles, until one side of the pile started an avalanche?

Imagine, Buchanan says, dropping one grain of sand after another onto a table. A pile soon develops. Eventually, just one grain starts an avalanche. Most of the time it’s a small one, but sometimes it builds up and it seems like one whole side of the pile slides down to the bottom.

Well, in 1987 three physicists, named Per Bak, Chao Tang and Kurt Weisenfeld, began to play the sandpile game in their lab at Brookhaven National Laboratory in New York. Now, actually piling up one grain of sand at a time is a slow process, so they wrote a computer program to do it. Not as much fun but a whole lot faster. Not that they really cared about sandpiles. They were more interested in what are called nonequilibrium systems.

They learned some interesting things. What is the typical size of an avalanche? After a huge number of tests with millions of grains of sounds, they found out that there is no typical number: “Some involved a single grain; others, ten, a hundred or a thousand. Still others were pile-wide cataclysms involving millions that brought nearly the whole mountain down. At any time, literally anything, it seemed, might be just about to occur.”

The pile was indeed completely chaotic in its unpredictability. Now, let’s read this next paragraph slowly. It is important, as it creates a mental image that helps me understand the organization of the financial markets and the world economy. (emphasis mine)

To find out why [such unpredictability] should show up in their sandpile game, Bak and colleagues next played a trick with their computer. Imagine peering down on the pile from above, and coloring it in according to its steepness. Where it is relatively flat and stable, color it green; where steep and, in avalanche terms, “ready to go,” color it red. What do you see? They found that at the outset the pile looked mostly green, but that, as the pile grew, the green became infiltrated with ever more red. With more grains, the scattering of red danger spots grew until a dense skeleton of instability ran through the pile. Here then was a clue to its peculiar behavior: a grain falling on a red spot can, by domino-like action, cause sliding at other nearby red spots. If the red network was sparse, and all trouble spots were well isolated one from the other, then a single grain could have only limited repercussions. But when the red spots come to riddle the pile, the consequences of the next grain become fiendishly unpredictable. It might trigger only a few tumblings, or it might instead set off a cataclysmic chain reaction involving millions. The sandpile seemed to have configured itself into a hypersensitive and peculiarly unstable condition in which the next falling grain could trigger a response of any size whatsoever.

Something only a math nerd could love? Scientists refer to this as a critical state. The term critical state can mean the point at which water would go to ice or steam, or the moment that critical mass induces a nuclear reaction, etc. It is the point at which something triggers a change in the basic nature or character of the object or group. Thus, (and very casually, for all you physicists) we refer to something being in a critical state (or us the term critical mass) when there is the opportunity for significant change.

But to physicists, [the critical state] has always been seen as a kind of theoretical freak and sideshow, a devilishly unstable and unusual condition that arises only under the most exceptional circumstances [in highly controlled experiments]…. In the sandpile game, however, a critical state seemed to arise naturally through the mindless sprinkling of grains.

Thus, they asked themselves, could this phenomena show up elsewhere? In the earth’s crust, triggering earthquakes; in wholesale changes in an ecosystem; or in a stock market crash? “Could the special organization of the critical state explain why the world at large seems so susceptible to unpredictable upheavals?” Buchanan asks. Could it help us understand not just earthquakes but why a cartoon in a third-rate paper in Denmark could cause worldwide riots?

Buchanan concludes in his opening chapter:

There are many subtleties and twists in the story … but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I’ve mentioned so far [earthquakes, eco-disasters, market crashes], as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in the office, and in many other things. At the heart of our story, then, lies the discovery that networks of things of all kinds – atoms, molecules, species, people, and even ideas – have a marked tendency to organize themselves along similar lines. On the basis of this insight, scientists are finally beginning to fathom what lies behind tumultuous events of all sorts, and to see patterns at work where they have never seen them before.

Now, let’s think about this for a moment. Going back to the sandpile game, you find that as you double the number of grains of sand involved in an avalanche, the likelihood of an avalanche becomes 2.14 times as unlikely. We find something similar in earthquakes. In terms of energy, the data indicate that quakes become four times less likely each time you double the energy they release. Mathematicians refer to this as a “power law,” or a special mathematical pattern that stands out in contrast to the overall complexity of the earthquake process.

Fingers of Instability

So what happens in our game?

[A]fter the pile evolves into a critical state, many grains rest just on the verge of tumbling, and these grains link up into “fingers of instability” of all possible lengths. While many are short, others slice through the pile from one end to the other. So the chain reaction triggered by a single grain might lead to an avalanche of any size whatsoever, depending on whether that grain fell on a short, intermediate or long finger of instability.

Now we come to a critical point in our discussion of the critical state. Again, read this with the markets in mind (again, emphasis mine):

In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size.

Now, let’s couple this idea with a few other concepts. First, economist Dr. Hyman Minsky points out that stability leads to instability. The more comfortable we get with a given condition or trend, the longer it will persist and then when the trend fails, the more dramatic the correction. The problem with long-term macroeconomic stability is that it tends to produce unstable financial arrangements. If we believe that tomorrow and next year will be the same as last week and last year, we are more willing to add debt or postpone savings in favor of current consumption. Thus, says Minsky, the longer the period of stability, the higher the potential risk for even greater instability when market participants must change their behavior.

Relating this to our sandpile, the longer a critical state builds up in an economy – or in other words, the more “fingers of instability” that are allowed to develop a connection to other fingers of instability – the greater the potential for a serious “avalanche.”

A second related concept is from game theory. The Nash equilibrium (named after John Nash) is a kind of optimal strategy for games involving two or more players, whereby the players reach an outcome to mutual advantage. If there is a set of strategies for a game with the property that no player can benefit by changing his strategy while the other players keep their strategies unchanged, then that set of strategies and the corresponding payoffs constitute a Nash equilibrium.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

© 2013 Mauldin Economics. All Rights Reserved.
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By CentralBankNews.info
     Russia’s central bank raised all its interest rates, including the key rate, in what it described as a temporary move to “prevent the risk for inflation and financial stability arising from the recent increase in financial market volatility.”
    The Bank of Russia said the new rates would take effect from today, March 3, at 11 a.m. Moscow time.
    
    

Crude Oil Four Hour

As expected, crude oil broke to a new high after recent slow and sideways price action above 101 which we think it was wave (iv) as already highlighted past week. As such, current move higher is most likely wave (v), final leg within wave A that may be looking for a top in this week around 105.00-105.50 area. With that said, traders should now be aware of approaching corrective reversal.

OIL 4hElliott Wave Analysis

Crude Oil One Hour

Crude Oil reached a new highs, so we have to be aware of a possible reversal in price as rally from 101 can be counted in five waves, so wave (v) can be near completion. Move beneath 103.68 will confirm a reversal.

OIL 1hElliott Wave Analysis

Written by www.ew-forecast.com

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