Brazil's Newest Deep Sea Oil and Gas Exploration Platform.

PMXL-1, Brazil's biggest oil and gas sea exploration platform is in final construction stages. It will stand at 230m high (equivalent to a 70-story highrise). It will be capable of processing 15 million cubic meters daily and will start operation in Q1 2009. You can see a picture below (sideways, while it is being built). The platform is visible from the Rio-Niteroi bridge and it stands taller than the bridge.



The platform will operate in the Mexilhao field, in the Bacia de Santos area, off Sao Paulo's state northern coast. The platform is being built at a cost of $1.2B.

Ring Of Fire Report

A report on the Ring Of Fire is presently available HERE. The report shows market caps, claims, and chart prices. This is part of a much larger report that is being finalized.

The current market caps as of the end of the day yesterday are shown below.

Ring of Fire Market Cap and Claim Units by Company

Here is an updated table based on the latest area claim map of the Ring of Fire region in Ontario, where Noront made its discovery. This map shows new companies in the area. The tables below show them sorted by current market cap and by the number of claim units they own. Some of the players have appreciated significantly in recent days, including the top names NOT, BMK, FNC, PRB and FWR.

Market Cap:



Click on each image to enlarge.


Claim Units:

The Ring of Fire Players (Re. Noront)

Here is a list of the current market cap of the Ring Of Fire players, where Noront (NOT.V) made is significant discovery. There are several companies exploring in the area (e.g, Probe, MacDonald, Freewest, Fancamp and others). I am working on a much bigger report on these. If anyone is interested please send me a note.

All figures in $M.

Performance of ETFs and Indexes on Each Weekday Show Very Interesting Results

This article discusses the daily performance of a number of indexes and ETFs. It shows the performance on each weekday ( Mondays, Tuesdays, Wednesdays, Thursdays, and Fridays). The results are quite interesting as there is quite a difference for a couple of specific days of the week.

The table below shows the performance of the Dow30 (through DIA), SP500 (through SPY), XLF, EWZ (Brazil), XFI (China), and the SP500 itself. The SP500 closely follows the Dow30 as they are highly correlated (see our post on correlation).



(Click on image to enlarge)

If you guessed one of them was Fridays, you are correct. Fridays are very good days to go short, most likely because people do not want to leave money on the table for unexpected bad news on the weekend?). The Dow 30 has gone down on 19 out of 25 Fridays for the first half of this year from January 2 2008 to June 30 2008. The average daily performance on Friday was -0.69%. If you shorted the Dow index at the end of the day on Thursdays and sold it at the end of the following day on Fridays, your cumulative performance would have been -15.95%. In comparison, the total return for the 6 months was -12.21%.


Note also that since the start of the year Brazil gained 10.3%, while its performance on Fridays was a cumulative -7.19%.

As for the best days to go long, it is clearly Mondays, where the Dow has gained 3.88% in spite of what was clearly a bear market in this first half of 2008.

The table also shows the number of days with returns over +0.5% and under -0.5%.

The graph below shows the performance of the Down on each weekday. You can clearly see how people usually sell on Fridays, perhaps afraid of whatever bad news might come on the weekend.



The Excel file used is also available for your viewing pleasure.

Zenn has the Potential for Disruption in the Auto and Battery Industries

Zenn is a Canadian company that currently makes electric cars and sells them in the US. These cars may soon (calendar year 2008 according to its CEO on a recent BNN interview) be powered by a new type of battery, one that can be recharged in minutes and allow 400Km of travel in one charge, and whose batteries are significantly lighter too (10% of the traditional lead battery weight).

Zenn trades on the Toronto Venture Exchange, ZNN.V and last traded at $4.92.

In the next several weeks, a privately-held and ultra-secretive company named EEStor Inc. will release the results of independent third-party testing of its electrical energy storage unit. These units can potentially be used everywhere, from hybrid cars to laptop computers. EEStor has Zenn and U.S. defence contractor Lockheed Martin Corp. equity and business partners. Lockheed bought exclusive rights to use EEStor's power system for military purposes, while Zenn bought exclusive worldwide rights to the system for vehicles weighing up to 1,400 kg. They say they believe it is the "holy grail" of electric storage systems.

[Edited June 27 10PM to add links and information]

ETF and Index Correlation Study for 2007 and 2008

Following the note on June 13, I performed a new correlation study for several ETFs and Indexes. This study has a new twist. It examines how correlation varies over time.

The study shows the correlation between pairs of symbols. For example, the correlation between gold (through GLD) and oil (through USO) was -.18 in Q207, 0.91 in Q3 07, 0.92 in Q407, 0.73 in Q108, and -.25 in Q208. Numbers close to 1.0 and -1.0 indicate correlation (positive and negative), while numbers close to 0 indicate a lack of correlation.




These numbers are very useful to see the current correlations, to observe correlation cycles, and for hedging and diversification.

These correlation values have been plotted in two different graphs below. Q2 2008 data includes up to June 18. The spreadsheet used is also available for download here.





(Click on images for larger version)

Turning to GPS To Save Money on Oil

The US Postal Service has 200,000 trucks running daily. A $0.01 increase in gas means $8M extra cost annually. A $1 increase means almost $1B in extra expenses.

The USPS is turning to GPS to optimize routes, and save on gas. Similarly, other delivery and courier companies may - or should - increase their use of GPS.

Companies to watch in the chip GPS space:

Trimble, TRMB
Garmin, GRMN
Sirf Technologies, SIRF

http://www.aoa-gps.com/
http://www.ashtech.com/en/
http://www.eaglegps.com/
http://www.garmin.com/
http://www.lowrance.com/
http://www.trimble.com/

Gold's W Formation

Gold may be currently showing a W formation. W formations are typically very bullish. Keep an eye on the right side for confirmation. Click on the GLD graph to expand. Stochastics (below) also show that gold should be moving higher but the fast stochastics are rapidly approaching overbought conditions.

Fundamentally however, I believe gold should be going lower, at least for the early summer. It all depends on the time frame.

Noront, NOT.V, Currently On Sale

Noront (NOT.v), Fancamp (FNC.v), and McDonald's Mines (BMK.v) have been previously discussed here with potentials for very significant gains. NOT is trading today at 3.30 and can be accumulated at these low prices. Fancamp, on the other hand, is trading at 2.15 and is at a good price to be distributed. These stocks can be easily traded in and out with the objective of lowering your ACB (Adjusted Cost Base).

These stocks are highly speculative and volatile.

NOT: In (30%) at 3.31
FNC: Out (50%) at 2.15
BMK: Holding.

Investing in Argentina? This is Not the Best Time.

This is a little note to warn those investing in miners, or other stocks, in Argentina.
Argentinean debt is today higher than in December 2001 when the country declared a default/moratorium. Analyst are warning that a new default may be forthcoming.

In 2005 its debt reached USD$114B, which was 56% of is GNP, or $170B if counting the debt to holders who refused to swaps on the original loans. Martin Krause and Aldo Abram, economists, warn that if Argentinean credibility continues to fall the country will be at serious risk of not being able to meet its financials obligations. The country has lately been raising capital from Venezuela. However, the economists also warn that Venezuela will not be able to to continue rescuing the country (by buying the loans or bonds), so far $6B in bonds in the last 3 years. Argentina has been paying a hefty price (14% interest). In comparison, Brazil pays 5.4% interest on 10-years bonds.

Current Argentinean inflation is at 20%. With the current situation on oil and food prices, this may get far worse.

Correlation of the Major Indexes and ETFs

I did a correlation study of major market indexes and ETFs. Correlation is a wonderful tool to achieve diversification and for hedging.

The results are quite interesting:

346 trading day study (since Feb 22 2007):

DBA and GOLD: 0.97
GLD and FXE: 0.94
TLT and GLD: 0.90
SKF and DBA: 0.90
EWZ and FXA: 0.97
VIX and SKF: 0.76 (best correlation for VIX)

A number close to +1 or -1 indicates good correlation (positive or inverse). If you are looking for hedging, then buy negatively correlated stocks, or go long and short two positively correlated stocks.

For example, the above shows you that you are not diversified if you buy the Aussie dollar and the Brazilian market!

If you buying USO and need to hedge it for example, then your best for 346 days bet was XLF (-0.92).

You can download a full list for 346 days (since Feb 2 2007) and for 100 days (since Jan 21 2008).

The Perils of Shorting Bonds

It seems that now everyone has jumped on the short bond band wagon, i.e., short selling bonds or bond ETFs (such as TLT), or buying puts on these ETFs, or buying the inverse ETF TBT. The reason is the high inflation in the US that will eventually, perhaps sooner rather than later, cause the Fed to raise rates. Higher interest rates causes a drop in bond prices as the current bonds become less valuable.

Common sense warns that if everyone is on the same side of a trade, it is not possible to make money. Everyone cannot make money. Besides this general concept, John Mauldin mentions a chapter of a book by Luis Gave, "A Road for Troubled Times", in which he discusses the impending fall of the Euro. An oversimplification of the chapter is that since the advent of the Euro some European countries can no longer print money at will. They could print local currency, but cannot print Euros. As a result, their deficits are ballooning out of control. In fact, countries may go bust because they issued debt in Euros, which they cannot print. France's debt to GDP ratio has moved from 35% in Francs to 70% in Euros. These deficits are getting larger. Obviously this situation cannot last forever and something will break. Asian countries' currencies have also appreciated recently. This has caused spreads between countries to increase in Europe (the spreads between the strong countries such as Germany and the not so strong ones such as France or Poland. This increase in spreads causes all kinds of problems for the banks and puts pressure on their balance sheets.

The debt of these countries used to be top notch on the assumption that countries did not go bankrupt. This top notch rating is no more. So the big problem is for banks that invested in this debt, these loans were not marked to market.

Solutions are the elimination or collapse of the Euro (countries stop adopting it) with dire consequences for the European union, or the devaluation of the Euro. A devaluation of the Euro through lowering of interest rates will cause another flight to safety, i.e, to bonds.

How all this works out, and how it affect the US is yet to be seen. So far the ECB has firmly insisted that the rampant inflation is one of its top priorities, so lowering of rates is not being considered. The consequences of raising rates will be nefarious for certain countries. If the politicians have their way, this will not happen. The financial and liquidity crisis that affected the US is only starting in Europe, this time the problems are caused by governments whose debts can no longer be considered at book value. This will cause all kinds of mega loses for the banks.

Gave concludes that the credit crunch has started to make its way into Europe and banks will likely be reporting losses and write-downs, and investors will flee to the safety of bonds. We are in for very interesting times ahead, those shorting bonds should take this into consideration.

Brazilian ADRs Trading Hit Record in New York

The daily trading volume of Brazilian stocks on the New York Stock Exchange (through ADRS) hit a record $4.07B in May. Volumes have jumped higher in light of S&P upgrade of Brazil to investment grade.

It is interesting to note that this volume is actually higher than the daily at the Bovespa (Sao Paulo Exchange) itself ($3.8B).

The top traded ADRS are:

PBR, Petrobras ON $1.5B
RIO, Vale $1.1B
BBD, Bradesco $244M
UBB, Unibanco $166M
SID, Siderurgica Nacional $155M
GGB, Gerdau $128M
ABV, Ambev $68M

Other ADRs:

ITU, Banco Itau
SDA, Sadia
PDA, Perdigao


SDA and PDA are the top food producers, great companies for those interested in ag. markets.


Source: O Estado de Sao Paulo.

The US Peso

In light of inflation and currency depreciation, some people are calling the US Dollar the US Peso. The table below shows the USD versus the Pesos of the world, plus the CAD and Euro.

The USD has lost 6.5% on average against the Pesos since Jan 2007.

(obs. Cuban peso not shown as it is a frozen rate. )

Household Income Spent on Food

The US Department of Agriculture publishes a nice report detailing the percentage of household income that is spent on food for various countries. From the latest report, the countries that spent the least are:

1. US 5.8%
2. Singapore 8.1%
3. Ireland 8.2%
4. U.K. 8.7%
5. Canada 9.3%

Note that the US percentage does not include what is spent on restaurants or take-outs which is likely a significant percentage.

The countries where people spent the most are:

1. Azerbaijan 51.6%
2. Belarus 47.3%
3. Morocco 44.8%
4. Algeria 43.7%
5. Jordan 43.6%



In terms of per capita dollars spent annually, the picture is quite different:

Least amount spent:

1. Pakistan $18
2. India $141
3. Nigeria $168
4. Vietnam $169
5. China $207


Most amount spent:

1. Norway $3,591
2. Switzerland $3,040
3. France $2,776
4. Japan $2,768
5. Italy $2,765
18. Canada $1,994
23. US $1,848

IMF and UN Rethorics Against BioFuels: Cut the US and EU Agricultural Subsidies Instead

Corn-based ethanol production in the US is known to be causing part of the current food inflation in the world since corn and grains serve as food basis for many areas of the world. The IMF (Dominique Strauss-Kahn), UN (Jean Ziegler), have recently taken the position of attacking biofuels in general. This rethoric has been increasing daily, to the point of declaring biofuels "a crime against humanity".
The world has over a billion of poor or hungry people, who were hungry before, and nobody was complaining then.
The problem is not biofuels.
Take the example of Brazil. Brazil has been producing Ethanol from sugar cane for over 20 years. Sugar cane is a much higher efficieny method of producing Ethanol. Aproximately half of Brazilians vars run on EThanol, even though the country will become in the future a major oil exporter. At the same time, Brazil has been increasing its production of grains and foods in general. The thesis that biofuels causes food inflation cannot be applied in that case.
Food inflation is complex and has many causes, increased demand from China, India, and other countries, and increased freight costs caused by the increase in the price of oil, and the subsidies in the US and the EU which prevent developing nations from exporting to those markets.
Brazil has proven that is possible to increase the production of biofuels and foods at the same time. Poor countries wish access to new technologies (equipment, techniques, seeds), financing, and the end of agricultural subsidies in the US and Europe. The US is producing Ethanol from what they have (corn), but why would they not rather buy it from Brazil, or partner with central americans countries which could produce it, and at the same time help alleviate the great poverty in these areas of the world? Brazil has been exporting its Ethanol-producing technology, currently doing so in Ghana.
Could the purpose of shifting the attention to biofules to divert attention from the Doha subsidies discussions? The problem has many roots. Could part of the problem be that US and European millionaires with huge lands wish to maintain their subsidies? The IMF and the UN should be attacking this instead. The problem is not biofuels.

Libor Rate Being Underestimated

The Libor, London Interbank Offered Rate, was created in the 80s and is a fundamental piece of the global financial system. It is computed in London every morning from data supplied by the world's banks and indicates the average interest rate that banks use to lend to each other.

The Libor rises when banks are in difficulty and drops when all is good. Interest rates on trlllions of dollars in debt are set by the Libor. In the last few months of troubles, the rate has shot up. The differecne between the 3-m ointh TBill and the Libor, a measure widely see as indicative of the financial health of banks, has gone from 0.4% in August 2007 to 1.6% today.

There are growing suspicions that the banks troubles are worse than they admit and that they do not wish to inform the real high rates they are paying because that would show how desperate for cash they are. If the banks are lieing, this also means that borrowers are paying less than what they should for their loans.

The BBA, British Bankers Association is reportedly investigating the misreporting issues. Concerns are in the written minutes of the Banbk of England meeting back in November 2007.

An analyst of Citigroup ( Scott Peng) estimates that the Libor is being underestimated by as much as 0.3%. If this is correct, the implications are tremendous.

Canadian ABCP Saga: Small Investors Hire Lawyers, Hedge Fund Offers to Buy ABCP and Sue Big Banks.

The Canadian ABCP SAGA took another twist today. Private "small" investors hired Juroviesky and Ricci to stop the big banks from trasforming their short term ABCP into 8 to 9 year term paper. This was the essence of the so-called plan to save the $33B frozen in ABCP that was being proposed by the big financial institutions in Canada, a controversial plan that has hit many road blocks and delays and is yet to be approved.

Small investors decided to fight, and because they greatly outnumber the big banks, they have some clout. Although the big banks control the majority of the funds, there are a total of 1,800 investors affected, so they are the ones in control. These investors bought this ABCP junk paper thinking that they were safe AAA short term vehicles, and are obviously not happy with the big bank "bailout" plan.

Henry Juroviesky, the lawyer from Juroviesky and Ricci, commented today on BNN that the investors have an offer from an American hedge fund that would pay these investors upfront, at a small discount, and then would use its massive Billions of resources to possibly sue the Canadian banks, not only for principal, but for damages too.

Bluff or not? We will soon find out. In any case, the plan as is, is more than dead.

UPDATE: Banks hit back:

"ABCP holders told they're welcome to invite vultures"
Globe and Mail April 3, 2008 at 3:05 PM EDT
"A committee trying to persuade small investors to support a proposal to restructure the frozen $32-billion market for asset-backed commercial paper would not object if they sold their holdings to U.S. vulture funds, a spokesman said Thursday."

Do Investors Hold over the Weekend or do They Sell?

Do investors sell their stocks on weekends so as to avoid potentially nasty surprises?





I looked at the closing data for each weekday in 2008 for DIA, SPY, and FXP (as well as FXI, XLF and VIX). DIA and SPY represent two broad indxes, FXP and FXI and Chinese ultra ETFs (short and long respectively), and the VIX is the volatility index.

For calculations I used the adjusted day's close minus close of the previous trading day. The objective was to see if people held these over the weekend. These are the results, and also shown in the graph above:


DIA:

Fridays: 10 down days, 2 up days, average -0.81%
Mondays: 4 down days, 6 up days, +0.35%
Tuesdays: 6 down days, 6 up days, +0.23%
Wednesdays: 6 down days, 7 up days, +0.03%
Thursdays: 6 down days, 7 up days, -0.14%

SPY:

Fridays: 10 down days, 2 up days, average -0.75%
Mondays: 5 down days, 5 up days, +0.23%
Tuesdays: 5 down days, 7 up days, +0.20%
Wednesdays: 7 down days, 5 up days, -0.14%
Thursdays: 7 down days, 6 up days, -0.13%


FXP:

Fridays: 5 down days, 7 up days, average +0.16%
Mondays: 6 down days, 4 up days, -0.56%
Tuesdays: 6 down days, 6 up days, +0.38%
Wednesdays: 5 down days, 7 up days, +1.61%
Thursdays: 5 down days, 8 up days, +1.29%

FXI:

Fridays: 7 down days, 5 up days, average -0.08%
Mondays: 3 down days, 7 up days, +0.47%
Tuesdays: 6 down days, 6 up days, -0.44%
Wednesdays: 7 down days, 5 up days, -0.71%
Thursdays: 8 down days, 5 up days, -0.74%

XLF:

Fridays: 7 down days, 5 up days, average -0.69%
Mondays: 5 down days, 5 up days, -0.51%
Tuesdays: 6 down days, 6 up days, +0.79%
Wednesdays: 7 down days, 5 up days, -0.01%
Thursdays: 8 down days, 5 up days, -0.35%

VIX:

Fridays: 6 down days, 6 up days, average +1.75%
Mondays: 7 down days, 3 up days, +0.01%
Tuesdays: 7 down days, 5 up days, -0.88%
Wednesdays: 5 down days, 7 up days, +0.57%
Thursdays: 7 down days, 6 up days, -0.54%

SUMMARY:




Looks like the results for DIA and SPY are pretty conclusive for Fridays. It seems that few people want to hold these during weekends. This is also consistent with the VIX being up on Fridays, percentage wise.

Interestingly FXP seems to do very well (long) on Wednesdays and Thursdays.