By MoneyMorning.com.au

In yesterday’s Money Morning I took a look at how commodity prices performed in 2011 compared to previous years.

But this list only included major commodities. By this I mean those with markets measured in the tens, or hundreds, of billions of dollars. The oil market is worth more than $3 trillion each year. Gold is worth $135 billion.

At the other end of the spectrum there are some metals that are just as important to the economy as oil and gold. The value of the metal consumed each year may not be worth anywhere near $135 billion, but if supply stopped it could cripple an economy.

For example, the tungsten market is worth about $3 billion a year. It may be a small market but tungsten was one of the best performing commodities in 2011, gaining 35%.

Tungsten is used for hardening construction and drilling tools. It is also used in hardening bullets, and other military applications. There is no substitute.

Like rare earth elements (REE), China produces most of the world’s tungsten supply. Since China restricted sales of Adenosine Triphosphate (APT), which is the main form tungsten is sold in, the price has doubled. Tungsten is following the same path as REEs, but no one has noticed yet.

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Tungsten is classified as a “strategic metal“.

This is defined as “integral to the national defence, aerospace or energy industry; and subject to potential supply restrictions” by Strategic Metals Investor (SMI).

Tungsten is just one of around 48 strategic metals in this category. Some of them are obscure. And some are hard to pronounce. The US National Academy of Sciences (NAS) published the following list:

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Some of these metals are mined from just one part of the world. Tantalum, which is essential for mobile phones, comes almost entirely from Rwanda.

This is part of the problem. When a metal is mined predominantly in one place, it makes it more prone to supply shocks. All it takes is a change of policy from that country, and supply levels drop. This is what we saw with rare earths and are now seeing with tungsten. Or if the power supply becomes unreliable in a single country, it can affect global production rates. This is what happened in South Africa, which caused a drop in global platinum, palladium and rhenium production.

The British Geographic Society (BGS) put together a list ranking the metals in order of how prone they are to this sort of supply disruption. I’ve included the top half of the list below – click here for the full list.

I’ve highlighted some of the metals on BGS’s risk list. These are the strategic metals predominantly produced in China.

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Tungsten is close to the top of the list, and in fact ranks ABOVE rare earth elements for risk of supply disruption.

The US military is talking tough against China’s military over issues like the South China Sea; but at the same time the US relies on China’s tungsten to develop its military capacity.

Other minerals on this list are essential for military applications. Antimony is an obscure mineral that is mostly used as a flame retardant. Molybdenum resists extreme temperatures and is used for armour and aircraft parts. Manganese has military applications as a steel hardener.

China has quietly positioned itself very well strategically, holding a powerful position over buyers of metals like tungsten, antimony, molybdenum, and manganese. All it would take is a quick change of policy to cease exports of these metals to weaken the US military’s capacity overnight.

Graphite may make you think of squash rackets, but it is used mostly for lithium batteries. The electric vehicle revolution depends on lithium ion batteries, which in fact contain more graphite than anything. China has a large and growing domestic market for electric vehicles. As this grows, China could restrict exports of graphite to ensure its domestic supply.

If China restricts the exports of these metals, as it did with rare earth elements, it would trigger a scramble for these commodities, and prices would soar. This would then lead to soaring prices of mining companies with deposits outside of China containing those metals.

It is just a matter of time before the market spots the opportunity with tungsten. Other metals like molybdenum and manganese are not far behind.

The hurdle these metals face is that they don’t have the charisma of gold or the acceptance of iron ore or coal. So it can be a tough to get the market to pay attention. But you could have said the same thing about rare earths a few years ago. Only a few investors knew about rare earths. Then when the price of the rare earths started soaring all of a sudden the idea hit ‘tipping point’ and leaped into mainstream awareness. The share price of every company with an ounce of rare earths suddenly went vertical.

This is the pattern I’d expect for these metals. Investors will need to be patient. But when these metals hit their own tipping point, your patience could be rewarded in spades.

There are only a few good companies on the Aussie market offering exposure to these metals. Some of them don’t get much attention. They are put in the shade by their more glamorous gold, oil or iron ore counterparts. But I think that some of them are excellent investing opportunities for investors with foresight and patience.

I’ve already recommended a tungsten stock to the readers of Diggers and Drillers. But I’ll be looking to add to this with more strategic metal opportunities soon.

Dr. Alex Cowie
Editor, Diggers & Drillers

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Stocks took a breather from last week’s rally as investors were cautious ahead of a possible Greek default. But we are in the midst of earnings season and optimism over quarterly performance helped prop up the major indexes, especially late in the day.

Oiltanking Partners Limited Partnership (OILT) announced its quarterly distribution of 34 cents per share. For the prior quarter, the prorated distribution for the period after the closing date of Oiltanking Partners’ initial public offering, July 19, 2011, through September 30, 2011 was $0.2678 per limited partnership unit, representing the minimum quarterly distribution of $0.3375 on a full quarter basis, or $1.35 on an annualized basis.

In trading on Monday, precious metals shares were relative leaders, up on the day by about 2.6%. Leading the group were shares of Minefinders Limited (MFN), up about 26% after an announcement that Pan American plans to acquire the company.

Investing in Options: An Insurance Policy Against a Volatile Market

by Jason Jenkins, Investment U Research
Monday, January 23, 2012

During the current market environment a good number of investors who lost money did so because they failed to keep the profits they attained or cut their losses. What they needed were strategies that could effectively help provide a means for exiting an equity position or offsetting losses when your stock moves against you.

One technique that Investment U recommends is using a trailing stop. Trailing stops are simply a stop-loss order set a certain percentage below the value of the stock – and then adjusted as the price rises. Whenever a stock in our portfolio pulls back 25% from its closing high – or from our original entry point – we sell the stock at market. This strategy keeps us from selling our stocks while they’re in a major uptrend – and prevents small losses from becoming unacceptable losses.

But this isn’t the only strategy available to us to protect against losses in a volatile market.

A Stock Insurance Policy

If you hold a stock that might take some losses in the short term, but your heart and valuations tell you that this is something you should be long on, a protective put may also provide short-term protection against all the current volatility we’ve been facing. 

A put option gives its owner the right, but not the obligation, to sell 100 shares (options work in lots of 100) of the underlying asset (in this case, shares of stock) at a definite price known as the strike price until a specified expiration date. No matter how low the stock price falls, you still can sell the stock for the strike price until the option expires.

When an investor also owns the common stock and a put option on that same stock, the position has limited downside risk during the life of the put.

Here’s an example:

Assume you own 1,000 shares of stock ABC worth about $72,000. If you do nothing and the stock suddenly drops to $50 a share, you could lose $22,000.

To help reduce this risk, you can buy “insurance” on your stock. If you decided to buy 10 put options with a strike price of $70, at a price of $2 (total cost $2,000), you could exercise your puts at any time prior to the expiration and sell your stock at $70, 20 points above the current market price, or sell the puts themselves to offset most of the loss on your stock.

If you chose to sell your stock at $70 by exercising your puts, the premium you paid for your put options ($2,000) would be your “insurance premium,” and the 2 points you would lose on your stock (because you paid $72 for it, and only sold it for $70) would be your “deductible.” Overall, your loss would be about $4,000 to $2,000 on the stock and $2,000 in premium (the amount you paid for the puts).

If your stock stayed above $70 by the expiration date, your puts would expire worthless, and the $2,000 you paid for the puts would be lost – just like the insurance premium you paid on your car if you didn’t have any accidents.

Options Provide More Options

To determine whether buying protective puts makes sense or not, consider how low you think the stock might drop. Keep in mind that there are different protective puts on the market to buy depending on the strike price and the expiration date.

If the stock price drops, you can hold the put until you decide to either sell the put for a profit or exercise the sale of the shares. If you believe in the company and the stock price drops below the strike price of the put, you can sell the put and use the profits to buy more shares of the stock at a lower price – the put is its own investment vehicle thereby providing a great deal of flexibility.

Good Investing,

Jason Jenkins

Article by Investment U

The Great Minds of the Market:
Charles Dow

by Alexander Green, Investment U Chief Investment Strategist
Monday, January 23, 2012: Issue #1692

This week I’m beginning a series about the great men and women – often unknown – who shaped the modern investment landscape.

Why should you care about these individuals, especially since many of them are dead? Because Sir Francis Bacon was right: Knowledge is power. This is especially true in the financial markets. And, as you’re about to learn, the type of knowledge you accumulate is likely to be a primary determinant of your success as an investor.

So let’s kick things off today with a man whose name is legendary on Wall Street:

Charles Dow.

Dow is a significant figure in the annals of financial history for two reasons. He created the first financial bible, The Wall Street Journal, and the first market barometer, the Dow Jones Industrial Average. In doing so, he revolutionized the way we talk about the financial markets.

(By the way, Charles Dow is sometimes credited with creating Dow Theory, too. This is not so. The market-timing strategy was extracted fom his WSJ editorials 20 years after his death by a market technician named William P. Hamilton.)

Charles Dow founded Dow Jones and Company with a partner in New York in 1882. At the time, most financial data was simply outdated news and unreliable gossip. But Dow Jones and Company published daily financial updates in a two-page newspaper called the Customers’ Afternoon Letter – The Wall Street Journal’s predecessor.

It was in the Letter that Dow first published his average, initially comprised of 14 companies – 12 railroads and two industrials.

Today the Dow consists of 30 large companies meant to reflect the U.S. economy. (There are, however, few holdings in heavy industry – and no railroads!) The average, price-weighted to compensate for stock splits and other adjustments, is the most closely watched benchmark for tracking stock market activity.

Yet the Dow is actually a poor representation of the broad market. If you’re looking to capture its performance, you’re much better off owning the better-diversified S&P 500 (NYSE: SPY) or the Wilshire 5000 (NYSE: TMW).

The most important thing we can learn from Charles Dow is the primacy of financial information. More than a hundred years ago, he realized that it was essential for investors to have not just opinions, rumors and forecasts, but verifiable facts. You simply must be well informed and up-to-date beyond this week’s headlines.

I’ve known investors who will buy a stock and not keep abreast of how the company is performing relative to its competitors, the direction of sales, or even the growth in profits. This is an act of faith, not rational investing.

Charles Dow created a daily business publication to give investors essential facts. Today, of course, you can get your financial news in real time off the internet. But the important data isn’t today’s government statistics or a new pronouncement by Ben Bernanke, but rather the hard numbers that tell us how individual businesses are performing.

The kind of investment news you accumulate is crucial. Listen to economic analysts, for example, and you’ll hear gloom and doom about high unemployment, the housing slump, consumer confidence, or problems in the Eurozone.

Listen to market analysts and you’ll hear trivia about short-term trends, changes in volume, support and resistance levels, and so on. This is not the type of information that will not make you rich.

But listen to business analysts today and you’ll hear plenty about corporate innovations, new medicines and technologies, and, not incidentally, all-time record corporate profits.

Is it any great surprise that investors who follow business news are making a lot of money in this market and those who listen to economic and market forecasts are sitting on their hands and earning miniscule returns?

Charles Dow knew better. And you should, too.

Good Investing,

Alexander Green

Article by Investment U

Bargain hunters are wise to pay careful attention to insider buying, because although there are many various reasons for an insider to sell a stock, presumably the only reason they would use their hard-earned cash to make a purchase, is that they expect to make money. Today we look at two noteworthy recent insider buys.

Source: ForexYard

As investors cautiously await any news regarding a Greek debt swap deal, the EUR/USD has slipped following last night’s bullish run. That being said, the pair has managed to stay above the 1.2900 level, well above the 17-month low hit last week. The EUR/USD saw significant upward momentum yesterday following successful debt auctions from both Spain and France. While the pair was not able to break the psychologically significant 1.3000 level, the positive news boosted investor hopes that the euro-zone may be slowly heading toward some kind of recovery.

As we close out the week, traders will want to pay attention to any developments regarding Greece’s efforts to avoid defaulting on its debt. While positive news is likely to boost the common currency, it should be noted that the euro-zone is still in an extremely fragile place, and that full recovery is still no where in sight. Additionally, traders may want to note the result of the US Existing Home Sales figure, set to be released at 15:00 GMT. A better then expected figure may boost investor risk taking, which could also benefit the euro in evening trading.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Investors will be paying attention to what the Euro Zone Finance Ministers will be saying regarding debt restructuring for Greece, and will also be keeping an eye on the EU decision regarding the ban on new contracts for Iranian oil, among other measures. Good morning, this is Kristin Bianco with the Week Ahead Market Report for Tuesday January 23, 2012.

UBS (UBS) downgraded ConocoPhillips (COP) from neutral to a sell rating. ConocoPhillips will be announcing earnings later this week.