Wednesday, August 15, 2012

This Oil Data Will Shock the World

You wouldn't hear about it in the mainstream media, but the U.S. just increased its oil reserves by 3 billion barrels... overnight.

On August 1, the U.S. Energy Information Administration (EIA) published the official oil reserves for the U.S. It showed the largest-ever annual increase since it began publishing the data in 1977. That 3 billion-barrel increase beat the next-largest jump by more than 60%.

And this is just the beginning...

Since U.S. reserves bottomed in 2008, they're up 22.8%... But here's the thing: We're only looking at 2010 data.

The government takes about 18 months before it signs off on "official" reserve data. In the meantime, this trend has accelerated. Let me explain...

We can attribute a large part of the 2008-2010 increase to massive growth in the Bakken Shale. The Bakken Shale is an oil-soaked package of rocks that lies beneath 90 million acres of North Dakota, Montana, Saskatchewan, and Manitoba, Canada. It contains over 400 billion barrels of oil.

The oil is trapped in rocks that hold on to it tightly, unlike the traditional oil reservoirs. The industry struggled for decades trying to get the oil out. But as Growth Stock Wire readers know, new technologies have "unlocked" that oil, allowing it to be counted as part of the country's official reserves.

As recently as 2008, official reserve data for the Bakken showed just 3.8 billion barrels. According to industry sources today, we will probably get 24 billion barrels out. (That's nearly equal to official 2010 reserves for the whole country.)

We will not get the official 2011 numbers until next year... And this year's will take another 18 months.

But I promise you, those numbers are going to shock the world.

All this "new" oil will correspond with massive increases in production. As I showed you last week, we're already seeing that.

That has me cautious on any investment that depends on a rising oil price. I'm more bullish on the small-cap stocks that are finding and drilling the next major sources of oil. I'll tell you more about what I see there in a future essay.

PetSmart, Inc. (NASDAQ: PETM)

PetSmart, Inc., together with its subsidiaries, operates as a specialty retailer of products, services, and solutions for pets in the United States, Puerto Rico, and Canada. The company offers consumables, such as pet food, treats, and litter; and hardgoods, which include pet supplies and other goods comprising collars, leashes, health care supplies, grooming and beauty aids, toys, apparel, and pet beds and carriers, as well as aquariums and habitats, accessories, d├ęcor, and filters for fish, birds, reptiles, and small pets. It also provides fresh-water fish, small birds, reptiles, and small pets; and pet services, such as grooming, including precision cuts, baths, nail trimming and grinding, and teeth brushing, as well as training, boarding, and day camp services. In addition, the company operates PetsHotels that offer boarding for dogs and cats; provides personalized pet care, an on-call veterinarian, temperature controlled rooms and suites, daily specialty treats and play time, and day camp services for dogs; and operates veterinary hospitals, which offer services comprising routine examinations and vaccinations, dental care, a pharmacy, and surgical procedures.

To review PetSmart’s stock, please take a look at the 1-year chart of PETM (PetSmart, Inc.) below with my added notations:

1-year chart of PETM (PetSmart, Inc.)

After trending higher for most of the last year, PETM has been consolidating within a small Rectangle over the last 2+ months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. For PETM, the Rectangle pattern has formed a $70 resistance (blue) and a $65 support (navy). A break above $70 would also be a new 52-week high.

The Tale of the Tape: PETM has formed a small Rectangle pattern. The possible long positions on PETM would be either on a pullback to $65, or on a breakout above $70. The ideal short opportunity would be on a break below $65.

Gold Mining Stocks Continue to Disappoint But Not For Long

It is an endless debate for investors interested in gold. Should they buy a direct play on the gold price, either gold bullion itself or even so-called paper gold with an ETF such as the SPDR Gold Shares (NYSEArca: GLD)? Or should they invest into gold equities, particularly the larger, higher quality gold mining companies?

Recent history suggests the answer is gold itself. According to Citigroup, physical gold has outperformed global gold equities 120% percent of the time over the past 5 years. Stocks of the bigger gold mining firms seem to react adversely to bad news (which is normal), but the problem is they react with no more than a yawn to good news. These type of stocks are contained in the Market Vectors Gold Miners ETF (NYSEArca: GDX).

Gold Mining Stocks ETF - GDX

Gold Mining Stocks ETF - GDX

Evidence of this trend can been see in the latest news to hit the industry…the slowdown in expansion as recently signaled by the world’s largest gold producer, Barrick Gold (NYSE: ABX). The company’s stock has fallen by more than 30 percent over the last year due to cost overruns at major projects. The latest blowup in costs of up to $3 billion occurred in its estimate for development of its flagship Pascua-Lama project on the border of Chile and Argentina. The project may now cost up to $8 billion.

In addition, Barrick decided to shelve the $6 billion Cerro Casale in Chile and the $6.7 billion Donlin Gold project in Alaska. Barrick is not alone in its thinking among the major gold producers. The CEO of Agnico-Eagle Mines (NYSE: AEM), Sean Boyd, recently said “The era of gold mega-projects may be fading. The industry is moving into an era of cash flow generation, yields and capital discipline.”

Fair enough. But are gold mining companies’ management walking the walk about yields or just talking the talk? Last year, many of the larger miners made major announcements that they would be focusing on boosting their dividends to shareholders in attempt to attract new stockholders away from exchange traded vehicles such as GLD, which have siphoned demand away from gold equities. Barrick, for example, did boost its dividend payout by a quarter from the previous level. Newmont Mining (NYSE: NEM), which has also cut back on expansion plans, has pledged to link its dividend payout to the price of gold bullion.

So in effect, the managements at the bigger gold mining companies (which are having difficulties growing) are trying to move away from attracting growth-only investors to enticing investors that may be interested in high dividend yields. This is a logical move.

But rising costs at mining projects may put a crimp into the plans of gold mining companies’ as they may not have the cash to raise dividends much. And they have done a poor job of raising dividends for their shareholders to date. In 2011 the dividend yields for gold producers globally was less than half the average for the mining sector as a whole at a mere 1.3 percent. Their yields are below that of the base metal mining sector and the energy sector.

It seems like management for these precious metal companies have the similar emotional response shareholders have when they are in a winning position. When the investor’s brain has experienced a winning streak and is happy it automatically goes into preservation/protection mode. What does this mean? It means management is going to tight up their spending to stay cash rich as they do not want to give back the gains during a time of increased uncertainty. Smaller bets/investments are what the investor’s brain is hard wired to do which is not always the right thing to do…

Looks like there is still a lot work to be done by gold mining companies’ to improve returns to their shareholders. But with all that set aside it is important to realize that when physical gold truly starts another major rally. These gold stocks will outperform the price of gold bullion drastically for first few months.

Gold Stock Rally

Gold Stock Rally

Gold Miner Trading Conclusion:

In short, last weeks special report on gold about how gold has been forming a major launch pad for higher prices over the past year. Gold bullion has held up well while gold miner stocks have given up over 30% of their gains. If/when gold starts another rally I do feel gold miner stocks will be the main play for quick big gains during the first month or two of a breakout. The increased price in gold could and value of the mining companies reserves could be enough to get management to start paying their investors a decent dividend which in turn would fuel gold miner shares higher.

Both gold and silver bullion prices remain in a down trend on the daily chart but are trying to form a base to rally from which may start any day now. Keep your eye on precious metals going into year end.

Investors Prepare for Euro Collapse

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure isn't in doubt.

Otmar Issing is looking a bit tired. The former chief economist at the European Central Bank (ECB) is sitting on a barstool in a room adjoining the Frankfurt Stock Exchange. He resembles a father whose troubled teenager has fallen in with the wrong crowd. Issing is just about to explain again all the things that have gone wrong with the euro, and why the current, as yet unsuccessful efforts to save the European common currency are cause for grave concern.

He begins with an anecdote. "Dear Otmar, congratulations on an impossible job." That's what the late Nobel Prize-winning American economist Milton Friedman wrote to him when Issing became a member of the ECB Executive Board. Right from the start, Friedman didn't believe that the new currency would survive. Issing at the time saw the euro as an "experiment" that was nevertheless worth fighting for.

Fourteen years later, Issing is still fighting long after he's gone into retirement. But just next door on the stock exchange floor, and in other financial centers around the world, apparently a great many people believe that Friedman's prophecy will soon be fulfilled. (more)

Silver Hoard Near Record as Hedge-Fund Bulls Recoil: Commodities /

Reporting for Bloomberg, Nicholas Larkin writes:

At a time when hedge funds are the least bullish on silver in almost four years, investors’ holdings are near a record, siding with the analysts predicting a rally as central banks move to bolster growth.

Speculators cut bets on higher prices by 72 percent since the end of February, mirroring changes in their copper wagers, which turned bearish in May, U.S. Commodity Futures Trading Commission data show. Silver held in exchange-traded products climbed for three months and is now valued at $16.2 billion, according to data compiled by Bloomberg. Prices will average $33.02 an ounce in the fourth quarter, 18 percent more than now, the median of 13 analyst estimates compiled by Bloomberg show.

Hedge funds anticipate slowing growth will curb demand for silver, 53 percent of which is used in products from televisions to batteries. Photographer: Akos Stiller/Bloomberg

Hedge funds anticipate slowing growth will curb demand for silver, 53 percent of which is used in products from televisions to batteries. Investors and analysts are bullish on expectations central banks will do more to stimulate economies, expanding consumption and increasing the allure of precious metals as a store of value. Prices tripled as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 to June 2011.

“Since the beginning of the year it has reacted more like a base metal than a precious one,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “The main negatives are still in industry. We’re waiting for more quantitative easing, and that would be really positive.”


Central Banks To Launch Unprecedented & Coordinated Action

from KingWorldNews:

Today Michael Pento told King World News central banks across the globe are about to unleash “unprecedented” and “coordinated” actions. Pento also cautioned investors it would be wise “to prepare accordingly.” Today Michael Pento writes exclusively for King World News to put KWN readers ahead of the curve of these enormous and extraordinary central bank actions.

Here is Pento’s piece: “There is just far too much attention being paid to the so called Fiscal Cliff occurring at the end of this year. The expiration of the Bush Era tax cuts and forced spending reductions taking place because of the sequestration, really doesn’t amount to much more than a fiscal speed bump.”

“In fact, less government spending is one of the pathways to prosperity; rather than becoming some make-believe economic catastrophe. And although raising tax rates isn’t an optimal solution, there could still be a small benefit if there was a resulting increase in revenue, which then served to reduce annual deficits and began to address our long-term fiscal imbalances.

Michael Pento continues @

Chart of the Day - 3M Company (MMM)

The "Chart of the Day" is 3M Company (MMM), which showed up on Monday's Barchart "52-Week High" list. 3M on Monday posted a 1-year high at $92.59 and closed up +0.12%. TrendSpotter has been long 3M since July 2 at $89.28. In recent news on the stock, 3M announced late Thursday that it signed an agreement with Healthland to license its 3M coding, grouping, editing and reimbursement software products. Under the agreement, Healthland, a provider of fully integrated solutions to rural community and critical access hospitals, will integrate the 3M solutions with its electronic health record (EHR) system and other applications to provide customers with actionable information that can be used to improve clinical outcomes, obtain appropriate reimbursement, facilitate quality reporting and prepare for ICD-10. 3M Health Information Systems will license the 3M Coding and Reimbursement System, 3M's market-leading coding software and 3M Grouper Plus Content Services. 3M, with a market cap of $63.5 billion, is a diversified technology company with leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses.