Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Thursday, August 31, 2006

Commodity Roundup

Click on the headlines to be taken to the stories...

Silver hits highest since end-May, investors buy

I'd been forecasting that the silver ETF would drive a breakout in silver. Maybe I was right, maybe I was lucky, maybe it's the "stopped clocks are right twice a day" sort of thing.

DJ ETF Securities To Launch 29 Exchange-Traded Commodities

This is on the London stock exchange. Still, I know some readers trade the European markets, so there you go. And the more they're buying over there, the higher prices will be over here.

Copper gains; mkt waits for confirmation of Escondida strike

Now this is odd. Copper prices are going up as the market waits to hear that the Escondida strike is OVER! I guess no one believes the deal is going to work.

Meanwhile, the story also relates that nickel "inventories, already at critically low levels, fell by another 720 tonnes. The metal touched a record 29,950 usd last week amid falling inventories and an ongoing strike at Voisey's Bay since July."

Funny thing -- the strikers at Voisey's Bay, Labrador, come down to Goose Bay to walk the picket lines (I saw them while I was there) because no one will see them in Voisey's Bay. Good luck to all on that one.

Goldcorp to Buy Glamis Gold for $8.6B

This is not the best short-term news for GoldCorp -- it dropped 3% on the news. But it's a smart move and should really help the stock longer-term.
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2 Uranium Stories

South Africa is starting to look at uranium again … I find that an interesting trend.,

Meanwhile, oil prices are rising on news that Iran is not going to play ball on uranium enrichment. Is anyone really surprised by that?
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American Eagle – Putting the Turkey Back in The Skies

I’ve learned the hard way that American Airlines has “issues” – lateness, canceled flights, etc. -- that don’t make it my favorite airline. But it shines compared to its junior partner, American Eagle, the “Tubbs” to AA’s “Crocket.”

American Eagle lost my luggage last night. I should just be glad I arrived in New York, I guess. At the gate next to ours in Logan Airport, a flight to Toronto was canceled due to weather that grounded a plane somewhere else. American Eagle wouldn’t put people up in hotels for free because it was “weather related” (I can’t wait to try that excuse with MY boss) but did offer folks who had to stay over discounts at a hotel. How nice, eh?

Meanwhile, our gate was being rushed by people whose 6:40 flight to JFK was canceled. They’d been rebooked on a 10 pm flight even though there were seats available on our flight, and the folks from the earlier flight didn’t find out about our flight until we were getting on. I’m sure that plan looked good on a computer somewhere. It was a mob scene.

So I get to New York. I hung around hopefully by the luggage carousels for an hour, but no luggage. I was one of seven people on my flight who trekked into the American Airlines/American Eagle “Lost Luggage” center. Would you believe it was a model of efficiency and ingenuity? Neither would I.

Then I grabbed a cab. Mohammad, my cab driver, told me “no credit card” when we were already approaching the highway. I have been in cabs from Mexico to Goose Bay to the Czech Republic – maybe I’m just lucky, but I’ve ALWAYS had the option to pay by credit card. For some reason, even though I had the cash, this ticked me off a great deal. Probably because I was so ticked off at American Eagle. So, I tried to get out (remember, I had no luggage to worry about, so why not?). He told me that it was illegal to walk on the highways. Foiled again!

Since I paid a flat fee, Mohammad gave me a Bullitt-worthy ride into mid-town Manhattan, windows wide open, as I called the hotel for directions (Mohammad’s not from around here). As we slowed down, I noticed the city smelled like someone had urinated on sweaty old gym socks and then left it to bake in the sun for a few days. Then I realized it wasn’t the city – it was Mohammad’s cab. I’m guessing there was an incident with bodily fluids in the back seat, which is why Mohammad kept his windows down. On the highway, that masked the smell well enough, but in slow traffic, my involuntary gag reflex was kicking in. And the one pair of clothes to my name now smelled like stale pee.

To distract myself, I started composing my eulogy: “That Sean was slow and plodding when he climbed hills in Labrador, but man, he flew like an eagle through the windshield when Mohammad slammed his urine-soaked cab into the bus.”

But there was no bus. We arrived safe and fairly sound, and I gave Mohammad a good tip so he could get the cab cleaned.

Then I checked in. On the way back down, as I went to buy myself a new toothbrush, etc, I got stuck in the elevator between floors.

So you can imagine my mood when, freed from the evil elevator and finally on the streets of New York after midnight, I ran across a Brick Oven Pizza restaurant. I bought an eggplant sub. And you know, maybe it was because I hadn’t eaten since breakfast, but that was the best eggplant sub of my life.

Welcome to New York!

P.S. I called this morning and my luggage still hasn’t shown up. How many orange suitcases with the name tag “Sean Brodrick” can there be on one night flying from Logan to JFK?
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Wednesday, August 30, 2006

No Rest for the Wicked

This is dawn over the small village where we’re staying. Why am I up so early? No rest for the wicked!

Here I am in front of the helicopter taking us to today’s tour. You’ll notice that I’m not exactly svelte. Downright fat if you’re honest about it (which I am, but hey, I’m married to a world-class cook). The organizers of the tour didn’t keep that in mind when they planned out an excursion hiking up and down slopes steep enough to require ropes. Ah, you should have heard me huffing and puffing like a steam engine as my two younger, slimmer, more nimble companions skipped about like mountain goats. Me, I prefer the helicopter. I wonder if Martin will let me use one to get back and forth to the office?
Here’s the main mining camp, near the big uranium deposit the company is trying to define. There are other deposits scattered about, which is what gives this the potential to be a much bigger find than currently estimated.

The camp is besieged by black bears – our guide tells us that there are more black bears in this neck of the wood than he’s seen anywhere, and from listening to him, I think he’s worked just about everywhere.

The bears are nothing if not persistent and aggressive. Some time back, one of the helicopters broke down out in the woods. The mechanic couldn’t fix it in one day. He ate a fruit cup as he worked, put the nuts and bolts in the empty fruit cup, then put that on the back seat.

That night, a passing bear smelled the fruit cup. It smashed through the windshield to get inside, and ate the fruit cup bolts and all, then left. He came back the next night to eat more of the helicopter. The crew finally got the helicopter out of there – good thing, or the bear would have eaten all but the blades.

Life in the camps are pretty Spartan, but they always have good cooks to take care of the crew. Indeed, the food I had last night was some of the best of my trip, and my trip started in New York.
Here’s one of the drilling rigs. As they drill, another team builds the pad at the next site. Then they break it down and haul it off to drill some more. This results in …

… hundreds and hundreds of drill cores. Notice the pink rock in some of the cores in the photo? That’s hematite. The uranium is bonded with hematite when it isn’t bonded with magnetite. This is a very unusual uranium deposit for a lot of reasons that excite geologists ...
… and here’s a geologist, holding a gadget that detects radiation atop some promising-looking rock. The radioactive emissions are still pretty low, low enough that you don’t have to worry unless you handle some of the more radioactive bits and then eat, passing the dust into your stomach. I suppose, if you were especially stupid, you could also lick the rocks directly to poison yourself.

But none of that happens to these guys. They wear badges that indicate how much radiation they’re exposed to and ship them off every month. Every single one has come back negative … except for a badge that was accidentally left too close to a computer.

That’s right. The same machine I’m typing this on and you’re reading this on gives off more radioactivity than the rocks these guys work with. Made your day with that little factoid, didn’t I? Well, it’s too late for me … save yourselves!

Notice the glove the smart man wears as he holds up uranium bearing ore? The yellow stuff is where uranium has oxidized due to exposure to air. Now you know why “yellowcake” is yellow.

I don’t know if you can see all the “9”s on the display of the device here – this is a pretty promising piece of rock.

My last photo for the day – you’ll see green along with yellow on this rock. That’s because there is copper right alongside the uranium. As I said, it’s very interesting geology.
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Tuesday, August 29, 2006

Letter from the Wilderness

Hi, Johhny B!

A helicopter ride is probably old hat to a former marine like you, but I went on only the second one of my life yesterday. Man, those things are fun! My pilot, Paul, picked me up at the Goose Bay airport, then we went to the (mostly) abandoned air base on the other side of town. That airbase used to host squadrons from all over the world – Europeans mostly – as their pilots practiced low-flying tactics, which is not something you can do easily in populated Europe. But now tactics have changed – it’s easier and cheaper to send a missile, postage due. So, the base is eerily quiet, with some buildings falling into disrepair.

It’s a good place to keep your helicopter though. We took off and headed NorthEast. The word for Labrador is "wilderness." Trees, rocks, ponds, lakes and more trees. There are huge scars on the landscape from a forest fire over a decade ago – this place may be a wildnerness, but that doesn’t mean it grows fast.

On the way up, we talked real estate. Paul the Pilot lived in Deer Lake on Newfoundland. He said that Europeans were flooding into the place. Lakeside lots that you could buy for $12,000 six years ago now fetched hundreds of thousands of dollars.

The other passenger, Dave Forrest, lives in Alberta. The price of his home has DOUBLED in the last six months, he said.

Me – I’m from West Palm Beach. The only way to move your house in West Palm Beach these days is to dynamite it! LOL!

Anyway, there are a bunch of mineral explorers (gold, copper, nickel, you name it) scattered over Labrador. We passed over the odd camp or two. We also passed over traces of the LAST uranium boom in Labrador – back in the 70s, before the price of uranium crashed. There are roads to nowhere that are nothing but snowmobile trails now.

We flew over some breathtaking cliffs and saltwater lakes, finally ending up at the former fishing village where the company makes its field headquarters. The actual mining camp is ANOTHER helicopter ride away – we’ll be leaving soon.
The air is so crisp and fresh here. And I remind myself that’s one reason uranium is going to get so popular … that is, unless you like choking on coal dust. And heck, some studies have shown there’s more radioactive traces in the exhaust from a coal-fired power plant than from a nuclear power plant. Crazy world, eh?

Gotta run (there’s a bear chasing me). Just kidding. You guys take care with that storm coming. If you have time, would you give my wife a call and see if she needs help with the shutters? Thanks, bud!

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Monday, August 28, 2006

Photo Gallery from My First Day in Labrador

Here's the chariot of choice when "you can't get there from here!"
Here's the view from the backseat of the chopper. It's okay -- I want to sit in the front seat during later trips when we head to the resource sites.
Here's the picturesque little town we're staying in. It's a fishing village, but the fishing has gone to hell. The locals are really looking forward to the mine.
There's uranium in them thar hills!
Is that uranium in your core sample or are you just glad to see me?!

That's all for now!
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Why I Hate American Airlines

It’s not just because they’ve lost my luggage before … though they’ve done that.
It’s not just because I haven’t been on an American Airlines flight yet that didn’t have some kind of delay, including that hilarious (in retrospect) time when they had to replace the plane and everyone had to run from one end of the airport to the other to catch the replacement
It’s the incompetence. Today, I was supposed to fly to Halifax on American and from Halifax to Goose Bay on Air Canada. Only, the American Airlines ticket agent couldn’t book my flight from Halifax to Goose Bay. Just couldn’t do it. Delta never has this problem, but AA just couldn’t do it.

So after my plane landed in Halifax, I had to run to the other side of the airport to rebook in the 50 minutes before my plane took off. And I did this in Wolverine work boots, not exactly made for running. And come to think of it, my body isn’t exactly made for running anymore.
I made it, with minutes to spare, thanks to a kind and thoughtful Air Canada ticket agent. Now, despite the best efforts of American Airlines, I actually made it to the mining camp. Huzzah!
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Heading to JFK

I arrived in New York last night with just enough time for dinner with my friend Kevin Kerr, one of the best resource traders on the planet. Now I'm off to JFK for the next leg of my journey.

Here are some uranium headlines that caught my eye this morning...

Uranium Prices Soar

Paladin commissions Namibian uranium plant ahead of plan

Koizumi to Sign Kazakh Uranium Pact in First Central Asia Trip

Australia should enrich uranium, says Downer

That's all I have time for now. I'll try and write from Goose Bay
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Sunday, August 27, 2006

The Undiscovered Country

I'm writing this from the Palm Beach airport where I'm embarking on the first leg of my trip. I’m flying through New York (as we say in my home state of Maine, “you can’t get there from here”). Then tomorrow I board a plane to Halifax, then another plane to Goose Bay in Labrador, then a helicopter takes me into the wildneress. If you're not familiar with Labrador -- and there's no reason why you should be -- here's the area I'm talking about...

As you can see, it's kind of out there.

Labrador is best known for its fishing. It didn’t have a gold rush … it had a Cod Rush. I'm not making this up. Labrador is the place where Labrador Retrievers sprang into being. Labs are the world’s most popular hunting dog, if you disqualify those darned Golden Retrievers (buncha show-offs!)

Shakespeare called the future "the undiscovered country." That rings true for me on this trip in more ways than one. I'm going to a land I've never seen before, and I'm going to check out a uranium resource. Uranium may have a much larger role to play in our country's energy future.

I'm very excited about this trip. I don't know how good my internet access will be, but I'll keep you posted on my travels as much as possible here on my blog. So stay tuned.
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Wednesday, August 23, 2006

BHP: China's Growth Will Remain Strong. But...

BHP, the world's biggest mining company, reported a 77% increase in profits. More importantly, it offered the opinion that China's economic boom -- and its demand for commodities should continue.

On the plus side, in the latest weekly report, Copper inventory tracked by the LME fell 125 tons to 122,650 tons. That's the second straight decline. BHP's "get-tough" stance with striking miners at its Escondida Copper Mine (the world's biggest copper mine) should keep the pressure on supply.

Copper mine production in 2005 was around 1 million tons lower than had been originally forecast, a big difference for an 18 million ton market. Analysts are ratcheting down their expectations for supply this year -- Macquarie just cut its forecast to 15.6 million tons from 16 million tons.

On the downside, Chinese demand for copper is down 5% in the first four months of the year compared to a year earlier, according to the International Copper Studies Group in Lisbon.

And though BHP has a bullish outlook on metals, not everyone agrees. Jim Lennon, executive director of commodities and mining research at Macquarie Bank, told Mineweb that a global increase in interest rates would inevitably result in a growth slowdown next year (after four years of global GDP growing above 4%) . That, in turn, would lead to lower prices unless supply issues got worse.

Ah, Jimmy. I believe you're living in the past. Here's my forecast for 2007. The Fed is going to cut interest rates fast and furious. We could even see a 4% Fed Funds rate next year.

Why? Because the housing bubble is imploding. July existing home sales fell 4.1%. And that's month-to-month. Year over year, July home sales were down 11.2%.

The Fed's not going to let that happen -- not with elections coming up. Does Ben Bernanke want to be known as the Fed governor who killed the economy? I should say not!

Look for lower rates going forward. That will lead to more easy money, and that should lead to higher commodity prices.
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Our Art Director Has Gone Insane

My latest Money and Markets is up now. You can find it at:

I have to say despite my bitching yesterday, the shortened version is actually pretty good. And Martin asked me to rewrite the lead and he was correct. I like the new lead I wrote better. Here's the new version...

I'm not much of a poker player — I talk too much and I'm too honest. Poker is a game where stone-faced SOBs end up with all the chips. Now, as I watch conflicts sprout up around the globe, I can only hope that we have some stone-faced SOBs on our side of the table.

Reason: The stakes are just too high. Sure, ideological differences are part of the reason for what's going on in the world today. But I think there's another, more tangible prize at the heart of it all: scarce natural resources such as oil, natural gas, metals ... even water.

Kudos to my editor Nilus for putting up with me. My new lead benefited tremendously from his editing.

Now, it's time to kill the art director.

Exhibit A is my Money and Markets from last week, "Kicking Butt by Kicking the Oil Habit." I direct you to the photo that was inserted with a caption that I DID NOT write...

For the record, I DO NOT believe nuclear power is the pot at the end of the rainbow. It's one of a number of answers to our energy problems, and the main answer is we have to change how we use/waste power in this country. Conservation is very important and hardly ever mentioned.

Well that was enough to put me in a bad mood. Now let's look at the next photo in the story. See if you can figure out what's wrong with it...

If you guessed: "that photo doesn't look like uranium mine," you'd be correct.

Well, I shouldn't complain too much. I'm not trying to be a diva. I'm getting published. And the edited (shortened) versions of my Money and Markets pieces are good for the short-attention-span crowd.

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Tuesday, August 22, 2006

Money and Markets: Cry Havoc!

Well, we had a disagreement over my Money and Markets column again. I realize they want these pieces to be shorter, but some really good stuff was cut out. So, here's the Director's cut of "Cry Havoc!" It will appear in Wednesday's Money and Markets at

Dear Subscriber:

The peace between Israel and Hezbollah is crumbling before ink is dry on the treaty. But this is no surprise to anyone who read my friend and colleague John Burke’s report, “The Rising Tide of War,” hot off the presses last week.

John laid out a case for a worsening spiral of conflict in the Middle East, and flare-ups in other hot spots around the world. I expect that will prove true, and I’d like to add my own twist to this: We are already fighting World War IV – a war over natural resources.

World War III was the cold war between the US and Russia. It could be the last conflict to be based primarily on ideology for decades to come. I expect the primary force driving World War IV to be commodities; oil, natural gas, metals … even water.

Like the US-Soviet stare-off, World War IV doesn’t have to be a “hot” war all the time. Much of the time it could be defined by struggles between corporations and the nation-states that back them in a quest for resources and accompanying global hegemony.

I touched on this back in my February 15 Money and Markets, “The Three-Way Race for Energy.” At the time, the big players in this conflict seemed to be the US, China and India. But now two more players are emerging on the stage: Iran and Russia, which seems eager to regain the prestige it had as the Soviet Union.

In his report, John gave you a list of defense stocks that will do well in the Rising Tide of War. I see there’s already been good news for some of those stocks …

  • One made a couple of smart acquisitions that give it an even deeper product line to bring in more of those big defense bucks.
  • One received a sweet analyst upgrade that praised the stock’s potential and send it higher. Nice to see other analysts are jumping on the bandwagon that John already got rolling.
  • One made a righteous bounce off support that looks as bullish as the running of the bulls at Pamplona!

I don’t want to give away too much about the great picks in John’s report, but I definitely think there should be much more good news to come.

And defense stocks aren’t the only stocks that will do well.

This five-sided conflict could send the stocks of select natural resource companies through the roof. And by buying those stocks now, you can build a financial fortress to protect your portfolio from the economic fallout to come … and potentially profit handsomely.

What do I mean by conflict? Here are some of the more recent maneuvers in World War IV…

Russia: The Big, Bad Bear Returns

Russia’s nationalization of assets of the oil company Yukos was a real blunder; it scared off foreign investment. Still, Russian President Vladimir Putin seems determined to restore Russia to the superpower status it held when he was a KGB officer. This time, it will be as an energy superpower, and it will enrich the small circle of billionaire friends that Putin keeps around him.

  • During the depths of last year’s harsh winter, the Kremlin forced the Ukraine to strike a deal by turning off its gas supply. The Ukraine isn’t the only one affected; Hungary gets 85% of its natural gas from Russia; Germany gets 40%. Other European nations also depend on Russian gas.
  • Now Russia is putting the squeeze on Lithuania, claiming that pipelines are worn out (the Lithuanians say that’s a lie) in what seems to be an attempt to either bankrupt or force a merger on Lithuania’s big energy and pipeline company, Mazeikiai. The Mazeikiai refinery is the only refinery in the three Baltic states and largest economic entity there. It is also Lithuania's top taxpayer.
  • Putin awarded a contract to a Japanese company to build a 2,361-mile pipeline from Angarsk on the southern edge of Lake Baikal to the port of Nakhodka -- a port from which petroleum could easily be shipped to the Japanese coast.

Now, the Russians have agreed to huge natural gas shipments to China and may allow the Chinese to build another pipeline off of the Japanese pipeline. This frightens European nations which are counting on that Russian gas.

China: The Rip-Roaring Tiger

China currently uses about 7 million barrels per day of oil (importing about half that), but that’s only going to up. The world average car ownership is 123 cars per thousand. In China, it is 15 per thousand. Chinese car ownership will likely accelerate – it is expected to increase FIVE-FOLD in the next 15 years -- which will drive up Chinese oil demand enormously.

In fact, China’s oil demand is expected to more than double by 2020. China’s government is determined to control its energy future. With $1 TRILLION in currency reserves, it has plenty of shopping power…

  • Since the beginning of the year, China has signed deals worth more than $7 billion for stakes in oil and gas fields in Kazakhstan, Nigeria and Syria. A state-controlled company is reportedly considering a $2 billion bid for yet another Kazakh property.
  • China has signed an oil exploration deal with Cuba. Now, China’s state-owned oil company Sinopec has moved huge deep-sea drilling platforms to the Gulf of Mexico, less than 50 miles from the Florida Keys – an area where US oil companies can’t drill thank to America’s Outer Continental Shelf (OCS) Moratorium. The US Senate passed a bill that would open 8.3 million acres for new energy development in the Gulf of Mexico, but it still has to get through the House of Representatives. Don’t hold your breath.
  • The Middle East provides about 45% of China’s imports. A big chunk of that comes from Iran which is forming much closer ties with Beijing.
  • China has spent over a billion dollars developing oil assets in Sudan, a country that is off-limits to US companies because Sudan’s government practices genocide against its own people.

As much as China spends on oil, it’s also spending enormous amounts on other vital materials, particularly metals, as it buys up mines by the score. As a result, 40% of China’s direct investment goes into South America. However, thanks to recent treaties, Chinese money should start pouring into the Australian resource sector. And Chinese money is already making waves in Canada. A Chinese oil company bought Canada’s PetroKazakhstan for $4 billion last year.

China’s economy is growing (over 11%), and its defense spending is growing even faster. Spending has been closely targeted at developing missiles and buying submarines, with the specific aim of constraining the US Navy off Chinese waters.

When the US recently expressed concerns about China’s growing military spending, Sha Zukang, China's ambassador to the United Nations, told reporters that “It's better for the U.S. to shut up.”

India: The Hungry Elephant

By 2035, India will be more populous than China. That will make things even tougher for a country that already has to import 70% of its oil

  • The energy-hungry subcontinent is rushing to establish bi-lateral deals with Bhutan, Nepal, and Sri Lanka to buy hydropower from those countries. It’s also trying to buy power from Pakistan; that’s one of the reasons India is willing to sit down at the table with a government that sponsors terrorists inside India.
  • India has negotiators in Tehran discussing a strategic pipeline. It’s trying to keep up with China, which closed a $70 billion deal with Iran in fall 2004.
  • India has made other deals with China. In December, Indian and Chinese energy firms joined to buy Petro-Canada’s 37% stake in Syrian oil fields for $573 million. And India’s state-run Oil and Natural Gas and China’s Sinopec jointly won a bid for 50% in oil company Omimex de Colombia.
  • But these two rivals also stab each other in the back. Two Indian companies are co-proprietors of rich natural gas reserves in Myanmar. So both they and they Indian government were stunned to find that Beijing had struck a deal with the Myanmar government for the exclusive rights to those reserves.

The US hopes to develop India as a regional counterweight to China. But as India becomes more powerful … and hungry for energy … we’d better watch our backs.

The US: Eagle Running on Empty

The US is finally starting to wake up and play this game. It blocked the sale of US oil company Unocal to China last year because of “national security” concerns. We should be concerned. The US is the market for between 25% and 30% of the world’s oil – in April, we imported over 13.3 million barrels of oil per day!

Our own oil fields are tapped out or falling apart. And once reliable suppliers like Kuwait and Mexico are seeing their own major oil fields go into irreversible decline. So, we’re making deals with some of the most unsavory characters this side of a Star Wars cantina…

In Azerbaijan, US negotiators held their noses to strike a deal with a corrupt and brutal government to build a $3.6 billion pipeline that goes through Georgia to Turkey. The US is very keen on this pipeline because Russia, China and Iran can’t touch it.

The US is also making energy deals in next-door Turkmenistan, a country where the leader is enforcing a personality cult that Kim Jong Il would envy. He has boiled at least one political opponent to death; his crimes are too horrific and numerous to detail. Occidental Petroleum and another US company Oil Capital, have struck multi-million-dollar deals to develop Turkmenistan’s rich Burun oil deposit and the Turkmen part of the Caspian Sean.

And the US adventure in Iraq was basically about oil, but hasn’t paid off. Iraqi oil production is still only ¾ of what it was before the invasion and occupation. Iraq is one of the few places where World War IV has actually broken out into a shooting war. I don’t think it will be the last.

Iran: Peacock Is Picking Fights

Iran is rich not only in oil but in natural gas. Iran and Russia have the largest natural gas reserves in the world. When it comes to crude, Tehran is the fourth-largest oil exporter in the world, but Iran’s aging and decrepit oil fields can’t keep up with the demands of a growing population. It desperately needs investment in its oil and gas fields and is turning to the Chinese and Indians to do it. Iran has adventurous plans of its own, starting with Iraq.

  • Iran has coerced the Shiite population of Iraq, funneling arms to insurgents and stirring up anger against the US occupation. The Shiite majority government of Iraq is falling more and more into Iran’s sphere of influence. In the latest deal, Iran agreed to supply Iraq with refined petroleum products in return for crude oil.
  • Tehran is also a major supporter of Hezbollah, helping feed the conflict with Israel. More chaos in that part of the world is to Tehran’s advantage; it drives the Muslim countries into alliances with Iran.
  • Iran has also become the unlikely ally of Venezuela. The two countries are bonding through their mutual hatred of the US, and Iranian money and expertise is now helping develop Venezuela’s heavy oil projects.

Don’t think for a minute, by the way, that the pending UN sanctions against Iran for its nuclear activity will ever get passed. China won’t allow it; it has too much riding on Iran’s economic development. China is one of Iran’s biggest oil customers, it inked a deal to buy $20 billion worth of Iranian natural gas over 25 years, and its China’s state-owned oil company Sinopec has a 50% stake in the development of Yadavaran, Iran's largest undeveloped oil field.
What the US will do when the UN sanctions fail … well, that might be another chapter in World War IV.

There are some who say the Israeli attack on Hezbollah in Lebanon was a test-run to see how strategic bombing might work in Iran. It seems to have failed, but failure hasn’t stopped this White House before. Indeed, the track record shows failure is rewarded.

In any case, Iran has shown repeatedly in the past that when oil prices get too low, it will find some way to inject fear in the market and get prices back up. Meanwhile, consumption is rising rapidly in China and India, and US gasoline US keeps rising year over year. Sure, we may see short-term pullbacks, but the long-term trend should be much, much higher. And as resources dwindle, World War IV will start to heat up.

You can hide under your desk as it happens. Or you can invest now to protect your portfolio … and potentially profit enormously. It’s not war profiteering. It’s smart investing.

My Red-Hot Canadian Small-Caps and Red-Hot Asian Tigers subscribers are already well positioned for the next wave. But if individual stocks aren’t your style, consider these fine funds…

Two Ways to Enlist in The
Coming Energy Showdown

U.S. Global’s Global Resources (PSPFX) doesn’t have a load and its expense ratio is a low 1.3%. Its holdings include Petrobras, Valero, Tesoro, and the Canadian Oil Sands Trust, so it should make the most of the next flood of money into global energy.

I also like the Guinness Atkinson Global Energy Fund (GAGEX). It was best of its class last year, and is truly a global energy fund, with top holdings including Sasol, Petrochina, Royal Dutch Shell, EnCana, and Repsol. The fund has an expense ratio of 1.45%. It has no load, but charges a 1% fee if you redeem it in the first 30 days.

Yours for trading profits

Sean Brodrick

P.S. It’s not too late to get John’s full 16-page report, "The Rising Tide of War: Five Defense Stocks Set To Soar," click here. Sure, the stocks recommended in it are starting to ramp up, but they should have a LO-O-O-NG way to go. John’s report includes his picks, price targets and recommended stop-loss levels. It's only $39, and Money and Markets readers can download it right now.

Check out my new gold and energy blog at

Monday, August 21, 2006

Too Much of a Good Thing

Forbes has an interesting story on the stunning growth in China's foreign currency reserves.

From the story...

  • When China began opening its doors to the outside world in 1979, its official reserves stood at a meager $2.2 billion. Now, it has nearly $1 trillion.
  • [China] added about $200 billion in each of the past three years and is now watching the kitty grow at a rate of $20 billion a month
  • The central bank's latest quarterly report, issued Aug. 9, explicitly admitted the need to curb the rise in foreign reserves

Forbes needs to take the next step and ask: "What will China do with all that money?" In an age of rising (and even accelerating) commodity prices, the obvious thing to me would be: "Buy and stockpile strategic commodities." Copper ... zinc ... aluminum ... gold ... silver ... oil ... natural gas.

What do you think?
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Daily Chart of Crude Oil

#1) Is price support that oil hasn’t even come down to test yet. Keep this in mind if we see a further pullback this week.

#2) This is my theory as to why we won’t see a further pullback. A former downtrend has turned into support. Oil tested this on Thursday, and his moved higher off of it. Very bullish.

#3) Stochastics are oversold and ready to move higher.

For the latest fundamental forces driving oil, see my MaM for this coming-up Wednesday (the 23rd)

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Monday Morning Gold

Here are two charts of gold. First, let's look at the daily chart

Gold is bouncing nicely this morning. Here are some reasons why…

#1) is Price support from June and July

#2) is the 50-day moving average. Follow that green line along and you’ll see that gold came down to test it on Friday and is bouncing higher off of it today

#3) is the bottom Bollinger Band. It would be likely for gold to bounce higher off of here.

#4) Is Stochastics, a measure of momentum. It is oversold and heading higher.

All these, taken together, should propel gold to at least the 20-day moving average at 635.50. But what happens there? Gold has broken its short-term uptrend? If you didn’t already buy gold’s bounce this morning, you might want to wait to see if it gets back on track or if it is just bouncing along sideways.

Now, let's look at the weekly chart of gold...

Looking at the weekly chart, we can see all kinds of support for gold

#1) is price support in the 574-576 area

#2) We can draw uptrends from here till the cows come home. 567-568 is one of them.

#3) Stochastics are bullish.

Fundamentally, there are three things the gold market must work through…

#1) Low volume – many traders and investors have been scared to the sidelines by gold’s volatility. Without higher volume, gold can’t go higher.

#2) Lack of buying by the big jewelry houses. This has been covered in the news lately. It’s worrisome. They may become big buyers at $600

#3) Potential China slowdown. Fears of this, along with China’s rate hike, sent gold and gold stocks lower on Friday. We’ll have to see how this plays out.

On the other hand, the big drivers that have propelled gold in the last two years – lack of new supply, growing investor demand, and more – are still in place.'

Bottom line: I'm bullish on gold, but after a bounce in the early part of this week, it may have some more consolidation to work through.

NOTE: One thing that could change this equation is if the US dollar falls out of bed. It is showing technical signals that MAY indicate it is going much lower. Naturally, since gold is priced in dollars, if the greenback goes lower, gold should go higher.

I'm more bullish on silver, for reasons I spelled out last week.
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Friday, August 18, 2006

Latest Interview -- Uranium and More

I talked to Tom Jeffries of today. He wanted to talk about uranium, so that was the conversation we had. You can listen to it HERE.

I'm seeing a lot of buzz and excitement among Vancouver uranium firms lately. Maybe I'll find out more when I take my trip to Labrador on August 28th to check out a uranium resource being developed by one of our RCS stocks.

Have a good weekend!
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Whom Gods Destroy ... They First Make Eat Crow

Yesterday, I said that it looked like "one of the best times in weeks" to buy gold. Gold responded by KER-PLUNK-ing through what I thought was a strong recent uptrend. Clearly, I was wrong.

I made some phone calls. Other people I trust aren't as worried about this as I am. They say that the gold market is still thin -- thinner than usual for this time of year -- as traders nurse volatility hangovers. A drop on thin trading activated a lot of stops -- no doubt set below that support I was harping about -- and the sell-off snowballed. New support is at 614-615.

So where does that leave us now? Well, if you look at a weekly chart of gold, you can see that longer-term uptrends are still intact. Will gold pull back to test those uptrends at 614 ... even 568? I don't know. And do you have the big brass ones to buy at 568 when everyone else is wailing about gold's demise?

Mind you, stocks could start moving up ahead of a gold rebound. It's all an expectations game. I'm longer-term VERY bullish -- yesterday's crap-out didn't shake that out of me -- for all the fundamental reasons I've been harping on for months. So we'll wait and see.

Meanwhile, silver is still holding its uptrend (I was already more bullish on silver), but can silver stay bullish if gold consolidates? I'm not sure about that either. My crystal ball has turned cloudly as I digest a large portion of crow.

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Thursday, August 17, 2006

Small Firms In Position As Copper Prices Soar

The Washington Post wakes up to the fact that there is a copper boom, and small-caps like Equinox Minerals are positioned to have their pick of suitors as the world's mining giants look for new sources of the metal.

Read all about it in ...

Small Firms In Position As Copper Prices Soar
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Uranium Wars -- The Battle for Queensland

Fascinating story on the politics behind local (state) bans on uranium mining in Australia, and how and why those bans might be lifted. Read it HERE
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Mother of Mercy... Is This The End of Rico?

My title is a famous quote from "Little Caesar", the great Edward G. Robinson film about a hoodlum who went from nothing to having it all ... then lost it all. And that's what many people are now saying about oil. It's finished ... done ... kaput.

Ah, but I think we're just changing reels in the film, my friends.

Here's a chart...Indeed, in the futures this morning, oil is down ANOTHER buck. However, as you can see on the chart, I believe oil will come into serious support between 69 and 70.

If oil closes below 68, that is short-term bearish. That said, we must still consider the long-term factors, which are decidedly bullish...

  • The world used 31 billion barrels of oil in 2005. That’s the most oil used in a year … EVER.
  • And yet, despite the highest oil prices in decades, despite the fact that every rig that could be hauled out of storage was put to use, less than 9 billion barrels of oil were discovered last year. That means we’re using up 3.4 barrels for every 1 we find.
  • It’s going to get worse. Global oil demand is expected to grow by 1.2 million barrels per day (mb/d) this year to 84.8 mb/d and grow again next year by another 1.6 mb/d, according to the International Energy Agency.
  • Major oil fields are peaking around the globe, in the North Sea ... Mexico's Cantarell ... Kuwait ... possibly even Saudi Arabia.
What we're seeing is a "relief" pullback because BP is doing "work-arounds" on its Prudhoe Bay pipelines that will allow half its normal production to keep flowing ... Peace seems to be breaking out in the Middle East ... Iran hasn't done anything crazy lately ... and ditto for Venezuela. Even Nigeria seems more peaceful.

Does anyone seriously think this "best of all worlds" is going to last. Things will go wrong. Indeed, I've been reading some details on America's oil and gas infrastructure that is simply frightening ... frightening!

Enjoy the cheap oil while it lasts. The long-term trend is definitely up. The only thing that could derail it is a severe global recession, and I don't think we're facing that.

And that makes pullbacks like this real buying opportunities.
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2 Metals Charts

Here's some metal charts I just sent to my co-workers...That looks pretty bullish, wouldn't you agree? Now here is gold...
And here's some interesting news ... a week ago (last Thursday), another analyst I respect quite a bit called for a "gold top." Well, after I finished picking my jaw up off the floor, I expressed my opinion that yes, gold was consolidating, but I would look for it to bounce around 626.

Yesterday gold hit a low of 626 ... and bounced.

There are no certainties in this business. But these and other signals are telling me that we're at one of the best times in weeks to buy physical gold.

Anyone who bought my gold report knows the best ways to do that. And if you were thinking of adding to certain stock positions recommended in that gold report, now should be a good time.

I'll try to get an update out for the gold report today. It's time for that anyway.

Good luck and good trades.
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Tuesday, August 15, 2006

The Steam-Powered Solution

Oh, Discordia! I wrote a long ... perhaps too long ... Money and Markets for Wednesday. It was cut WA-A-A-A-AY down.

I could accept this, much as Hero of Alexandria accepted that the Roman authorities kept nixing his inventions (for fear they would be used to topple the state). Or...I could print it right here on my blog.

Who is Hero of Alexandria? Well, to find that out, read the director's cut of ...

How to tell the Saudis to Kiss Our Butts

Last week’s terrorism news hides an elephant in the room: Everyone applauds the arrest of the two dozen terror suspects who plotted to blow British airplanes out of the sky ... and they cheer as banks freeze their private accounts ... but they ignore the fact that much of al Qaeda’s money comes from Saudi Arabia.

While the Saudi government is very active in fighting terrorism, on the other hand, Saudi money supports the spread of the radical version of Islam espoused by Osama bin Laden … and there’s also direct Saudi financing of terrorists. Earlier this month, the Treasury Department said it would freeze assets belonging to Abd Al Hamid Sulaiman Al Mujil, a Saudi national. Reason: Al Mujil provided financial support to the Al Qaida terror network.

The sad fact is Americans are funding al Qaida every time we fill up our gas tanks. That gasoline is made from oil, and some Saudi oil revenues are siphoned off to Islamic radicals. Saudi Arabia will earn more than $203 billion in oil export earnings this year, an all-time record, up 25% from the record last year of $162 billion. How much of that do you think is going to support the spread of radical Islam?

So why doesn’t our government take the Saudis to task? It’s hard for an addict to come down hard on a major enabler of his addiction. And as President Bush himself has said, America is addicted to oil.

Maybe It’s Time to Beat Our Addiction

How are we going to do that? Before I tackle that question, let’s go back to the invention of the steam engine. It sounds like one heck of a side trip, but trust me, it could be very profitable for you.

Now when you ask most people who invented the steam engine, they might say: “the first steam engine was patented by James Watt, a Scottish inventor, in 1769.” If they’re feeling really clever, they might say “Thomas Savery invented a steam pump for use in mining in 1698 – that was the first steam engine.”

And they’d be wrong.

The first steam engine was invented in Roman times -- shortly after the birth of Christ -- by a guy named Hero of Alexandria. Hero was, as we say here in Florida, “a frickin’ genius,” the Michelangelo of his day. He was nicknamed “Michanikos – The Machine Man.” So why haven’t you heard of him? Because many of Hero’s inventions had military applications, so he was kept something of a state secret. For example, Hero invented …

  • The “Cheirobalistra,” a device that hurled large arrows over long distances.
  • The “Palintonon stone-thrower,” which did the same thing, only with rocks or iron balls. Hero wasn’t the first to do this (that honor belongs to Archimedes), but his threw bigger rocks further distances.
  • A surveying device that used triangulation – about six centuries before the English reinvented it.

Each one has military applications. The Roman authorities recognized that such things could be used against them. After all, Archimedes’ catapult was first used to rain rocks down on Roman ships. So, they clamped down on Hero’s inventions one after another, sending him back to the Great Library of Alexandria in frustration.

Hero Goes Hollywood!

So, Hero did what any frustrated genius might do – he went Hollywood. He started churning out inventions that added “ooh” and “ahh” to theater and religious events. Gizmos like a machine that produced thunder on cue, and a device that automatically opened a temple door when a fire was lit on an altar.

And one of his devices was, as Hero called it, an Aeolipile (Wind Ball). It generated steam and turned it into rotary motion, which is what steam engines do.

By this time, Hero was in his full-blown theater phase, so the Aeolipile was left as an amusement and nothing else. Imagine what the Romans could have done with railroads. After all, the Greeks invented rails around 600 BC. You don’t have to be Pythagorus to add up the possibilities.

If Hero’s steam engine was put on rails and attached to a cart, why, you’d have a “steam carriage.” We’d have to come up with a new word for that: “Locomotive,” maybe. Hmm… Veni, Vidi, Wheeeeee!

And if the Romans had developed the locomotive, imagine where we’d be today. I think we’d be colonizing space … and speaking Latin. I had two years of Latin in high school. My grades suffered toward the end as the grammar got more complex. “Damn you, future pluperfect tense, damn you all to hell!”

Sorry, I was having a high school flash-back there. Now, let’s flash forward to today.

The End of the Oil Age

The sad truth is the world is running out of oil. I’ve given you some good reasons why that is happening. But it all boils down to simple supply and demand.

  • The world used 31 billion barrels of oil in 2005. That’s the most oil used in a year … EVER.
  • And yet, despite the highest oil prices in decades, despite the fact that every rig that could be hauled out of storage was put to use, less than 9 billion barrels of oil were discovered last year. That means we’re using up 3.4 barrels for every 1 we find.
  • It’s going to get worse. Global oil demand is expected to grow by 1.2 million barrels per day (mb/d) this year to 84.8 mb/d and grow again next year by another 1.6 mb/d, according to the International Energy Agency.
We’re going to have to find something besides conventional, ol’ reliable oil to rely on in the near future. What comes next?

Time to be a Hero!

Would you believe steam?

I’m not recommending you run out and buy a classic steam locomotive – though it would look awfully cool in your driveway.

Instead, one of the many uses of a steam engine is nuclear power. A nuclear reactor does not directly generate electricity. The reactor sits there and gets hot, which heats up water, creating … steam. That turns a turbine, and away we go!

And here’s where we get to the profit part of this article.

Did you know…

  • Demand for uranium is far outstripping present supply. Production from world uranium mines now supplies only 62% of the requirements of power utilities.
  • About a third of annual demand for uranium was met by Russia’s highly-enriched uranium weapons de-commissioning. We are fast reaching the end-game on that. Inventories are declining FAST.
  • Until recently, no new mines were built outside Canada for 20 years.
No wonder uranium prices are up 61% in the last year alone! Boy, with prices rising like that, utilities must be thinking twice about building nuclear power plants, right? Nope. There are 442 nuclear reactors in operation, 28 under construction, 38 planned and 115 proposed! That’s a lot of growth in demand.

Why? Because nuclear energy is still cheap compared to the alternatives. For example Westinghouse claims its Advanced PWR reactor, the AP1000, will be able to generate electricity at 3.3 cents per kilowatt-hour, including construction of the plant. That’s a bit more expensive than coal, but less expensive than natural gas. Unlike coal, nuclear power doesn’t generate greenhouse gases. With the world getting warmer, we need to figure that in, too. And the next generation of nuclear power plants will be much safer and substantially faster to construct.

While there is a short-term supply/demand squeeze in uranium, it’s only in the shorter term. Uranium isn’t rare. It’s as common as zinc. And there is plenty of exploration going on – enough to raise the proven amount of uranium resources to 85 years supply at current consumption rates. We can’t say the same about oil.I expect we’ll use uranium a lot more. In fact, I expect we’ll see a rush into uranium that’s the equal of any gold rush. That is – we will if we’re smart.

Here’s What Could Go Wrong

But what if we make the Roman mistake … and don’t use nuclear power? Could that happen? The anti-nuke movement in the US is pretty subdued for now, with the memories of 3-Mile Island fading into the background. But there is a worsening problem that could wake it up … and turn the US off of nuclear power. That problem is the Hanford Nuclear Reservation in Washington state – the most polluted site in North America. Nearly two-thirds of America’s nuclear-weapons waste is stored at Hanford, most of it in 177 underground tanks that are decades old. A million gallons of nuclear waste is already seeping from tanks at Hanford to form an underground plume that is inching toward the Columbia River. If it reaches the river, it will poison it for hundreds of years.

Consider that: The Columbia River and everything along its banks is in danger of being poisoned for centuries. If al Qaida was doing this, would we stand for it?
But al Qaida is not involved, so the Bush administration’s attention is focused elsewhere. Plans to clean up Hanford have run afoul of mismanagement and the fact that the waste-treatment facility being built at Hanford was not designed for earthquakes. Hanford is in an earthquake zone.

The Government Accountability Office, the Nuclear Regulatory Commission and the Army Corps of Engineers have all raised alarms about Hanford. In April, The Government Accountability Project (GAP), a government watchdog, issued a scathing report on Hanford, the Department of Energy and Bechtel, which is building the waste-treatment facility.

Say Hello to the Dark Ages

If the nuclear poison reaches the river, atomic energy is going to come front and center – in a very bad way – for the US. That could turn out the lights on the US nuclear program … and as conventional energy resources become more and more expensive, usher in a new dark age for the US.

Remember the Romans had plenty of advances that were lost for generations. They discovered geometry … mechanical clocks … concrete that set underwater … even advanced medicine such as cataract removal. All of it was lost in the dark ages. Again, I wonder what would have happened had the Romans used the power of steam to revitalize their civilization. Seizing opportunities leads to more opportunities.

On the bright side, I think the US will correct and get past the blunders at Hanford. Nuclear power gives us more than just the ability to keep the lights on. We can start electrifying the railroads, like the Chinese and Russians are already doing. We can build electrified mass transit. We can build electric cars. In short, with enough nuclear power, we can tell the terrorist-funding Saudis to kiss our collective buttocks.

Nuclear Is One Alternative … and The Best Alternative

Are there other alternatives? Yes! Solar, wind and biomass all have their place; they just aren’t as far along the road as nuclear power. I think nuclear power is our bridge to the future. After all, it uses steam engines, which as I’ve shown you, were invented in Roman times. Two thousand years is plenty of time to work out the kinks.

In fact, I’m so bullish on nuclear power, I’ve already got two uranium plays in my Red-Hot Canadian Small-Caps portfolio and I’m adding a third today.

I’ll tell you about that in a minute. Maybe individual stocks aren’t for you. In that case, consider these exchange-traded funds…

#1) The Safe Route – The XLE

Oil prices are going to trek higher for years to come – alternatives including nuclear aren’t even close to filling the gap. That makes the Energy Select SPDR (XLE) a safe bet. It owns Exxon Mobil, Chevron and others. Are they profitable? Heck, yeah! Five of the world's largest oil companies -- BP as well as Chevron Corp., ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC -- reported combined earnings in the second quarter of $34.6 billion, up 36% from a year earlier.

#2) More Risk and Potential Reward – the PBW.

If you have a higher tolerance for risk, consider the Powershares WilderHill Clean Energy (PBW). This fund invests in companies that are concentrating on highly experimental technology. They should benefit from higher oil prices, government subsidies and a rush of investor money into alternative energy as oil prices go higher. In fact, venture capitalists invested a whopping $843 million in alternative energy and other clean technologies in the second quarter – a 64% gain.

PBW is a volatile fund – down 28% from its highs earlier this year – but it could really pay off. It has a total expense ratio of 0.7%.

But to really make the most of the coming wave, you need to buy small-cap companies, especially small-cap uranium companies. Companies like…

My Latest Pick Is a White-Hot Uranium Explorer

This gold and uranium explorer has potentially rich properties ranging from the hills of Asia to the wilds of Canada. It’s already making money, trades at a much lower price-to-book value than the industry average, and has very little debt and plenty of cash in the bank. More importantly, it has smart strategic partnerships and top-notch management that is determined to bring its latest find, a uranium bonanza, from resource to mine by 2010. And that should put it in the catbird seat if uranium takes off the way I think it’s going to.

N.B (that's Latin for Nota Bene "note well", often used for endnotes). Here's the link to the official, shortened version of this story at, if you're pressed for time...

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China Crude Oil Imports May Decline, Says Cnooc

Here's a story from last month that just caught my eye now. When you read this, keep in mind that the Chinese and the Saudis are usually tied spots #1 and #2 in the World-Class Liars contest every year, in the category of "Countries Who Lie to Manipulate the Commodities Market". But here's the story ...

China Crude Oil Imports May Decline, Says Cnooc

July 20 (Bloomberg) -- China's oil imports, a driving force behind record prices, have ``stabilized'' and may decline within three years as government measures to conserve fuel take root, Cnooc Ltd. Chairman Fu Chengyu said.
Shipments will stay near 130 million metric tons a year before dropping, helping global prices ease in the ``long term,'' Fu, who runs China's third-biggest oil company, said in a July 18 interview. That prediction contrasts with Titan Petrochemicals Group Ltd., the country's largest oil-supertanker owner, which forecasts a jump of as much as 15 percent in 2006 imports.

The rest is HERE
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Disconnect on China!

Just to show that the Chinese economy is so big, so complicated that even the experts get confused, take a look at these two stories on recent Chinese economic growth. See if you can spot the disconnect...

Story #1...
China's industrial output soars

China has seen its industrial output surge in July compared to a year earlier, official statistics show.
Industrial output was up by 16.7%, the National Bureau of Statistics said, with strong increases in iron ore, steel products and coal.
While the rise is below June's annual growth of 19.5%, analysts still predict strong growth ahead.

Story #2...

China's Industrial Output Slows as Car Demand Cools (Update3)

Aug. 15 (Bloomberg) -- China's industrial production rose last month at the slowest pace since April as increasing fuel costs crimped demand for cars and the central bank reined in lending for new factories.
Output at manufacturers, mines and power plants climbed 16.7 percent from a year earlier, the statistics bureau said today. Growth slowed from June's 19.5 percent pace, which was the fastest on record, and lagged behind all forecasts in a Bloomberg News survey of 22 economists.

MY TAKE: So who's right? The scary thing is maybe they both are. 16.7% growth is phenomenal! Just to look at another statistic, vehicle production in China grew at a 10.4% pace. Detroit would cream its collective jeans if it saw that. On the other hand, China's economy has been so red-hot that this is a significant slowing. Vehicle output int he first half of the year increased 28%.

Meanwhile, retail sales in China's cities rose 14.2% to 408.2 billion yuan (that's US$51 billion in real money) in July from a year earlier. So here's an idea. Maybe China's car production was crimped by oil prices, but otherwise, the transformation of China into a consumer economy is proceeding apace. If that's the case, Chinese economic growth -- and its appetite for commodities -- will increase.
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Silver Surfer

I haven't posted since Thursday -- sorry about that. I had a very busy weekend with company and all, and then Monday was the usual madhouse at Castle Discordia (aka, the office).

Anyway, here's something that has me feeling pretty good, considering how many precious metals plays I've put in Red-Hot Canadian Small-Caps adn Red-Hot Asian Tigers.

It's a chart of silver...

Silver did not suffer from the general weakness in metals on Monday. However, this chart shows it could still pull back quite a bit and be in an uptrend.

It's a busy day -- I'm doing an RCS issue and working on my latest metals report. I'll try to post later.
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Thursday, August 10, 2006

And Here's My Oil Chart...

My coworkers and I are discussing the price of oil ...
Even though it sent oil plunging, great work by the British police. I hear Pakistan helped them out by fingering the perps; I take back half the nasty things I've said about Pakistan. Yes, it may still be a bomb-peddling, terrorist-backing rogue state that's just one ayatollah from Islamo-fascism, but now Pakistan is welcome to come over for Thanksgiving dinner. We won't serve ham.
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How Deep and How Long?

Today's brutal pullback in oil and tag-along pullback in metals could be a one-day "terror-blip", or it could be the start of a playable pullback. One of my more bearish compadres wrote to me to say he thought we were near some "resolution" on gold. Oh, if only it were that easy, Horatio!

Since I'm long-term bullish, I'll use this pullback as a "Filenes' Bargain Basement Sale" to add to portfolios. Here are some charts to consider.

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Oil Price Target Raised & Copper Going Ballistic

Three stories caught my eye this morning. I thought I'd share them...

#1 U.S. raises oil forecast $3 a barrel

The government Tuesday raised its forecast for the average price of oil in August by $3 a barrel, citing July's heat wave and decreased production from the closure of BP's oilfield in Alaska's North Slope. The Energy Information Administration (EIA), the numbers arm of the Energy Department, estimated in its monthly energy forecast that oil is expected to average $76.50 a barrel in August, up from its prior forecasts of $73.50.

[XX My comment: Better late than never. But their price could still be too low. On the other hand, maybe now that Britain is on a full-scale freakout over a terror alert, maybe airline travel will drop significantly and that will lower demand, sending prices lower.]

#2 Higher copper prices feared

With an already tight copper market pushing prices to record highs, a possible strike at BHP Billiton's (NYSE: BHP) massive Escondida mine in Chile and problems at several others could mean "very big things on the price side," observers say, because even a short-term disruption could put a strain on supplies.

[XX My comment -- Copper hit a three-week high in London this morning. Copper, zinc, nickel and other base metals' prices have been rising because of soaring demand from China and India. But demand is just part of the picture. Supply is tight. And it's not just labor costs. Old mines are getting worked out and new deposits are more expensive to mine (if they're there at all)]

#3 World Steel Prices Are Sliding

While North American steel prices continuing to rise slightly this month, world steel prices are sliding off cyclical July peaks in China, other Asian markets and the European Union. That's because offshore supply is beginning to outpace demand – especially in China, the biggest user and maker of the metal, which has turned from a net importer of the metal to an exporter. In fact, Business Week's Asia Online edition reports from Seoul that "the Korean steel sector is suffering from a glut of gargantuan proportions, thanks to a flood of exports from China."

[XX Wasn't it less than a week ago we heard that steel was on the upswing? Why yes, here's the story right HERE. So who's right? I don't know yet -- it's a story that bears watching.]
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Wednesday, August 09, 2006

Latest on Prudhoe ... Optimism and Pessimism

Here's the latest on Prudhoe Bay. I've excerpted two paragraphs that show optimism and pessimism.

The Optimist...

On Tuesday, Energy Secretary Samuel Bodman said that repairs are expected to take until January but that part of the pipeline may be operable before then. That would allow some oil from the Prudhoe Bay field, which supplies about 8 percent of the nation's oil production, to continue to flow.

The Pessimist...

“I think it is a much larger problem than people are led to believe,” said Chris Edmonds, vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. “This is 22 miles of transit pipe that BP runs in its Prudhoe Bay facility in Alaska in territory that is not that easy to get to or work in.”

You'll find the story here:

I find myself lining up with the pessimists. Remember, they use an awful lot of water to get that oil out of the ground. What comes out of the ground now is 3/4ths water. Since water contains carbon dioxide, it corrodes pipes. The water also contains sulfate reducing bacteria, which corrodes pipes even more.

The people at BP aren't fools. They spend $72 million a year fighting corrosion, and about half that money goes for millions of gallons of anti-corrosive chemicals that are put in the pipelines. In retrospect, those chemicals aren't doing the job.

Sure, the water is taken out of the oil once it's pumped to the surface. BP has viewed oil carrying transit lines, such as the line that developed a leak, as much less susceptible to corrosion than a water bearing line. OOPS!

I think there's risk to the Trans-Alaska pipeline as well. Yes, it's more market-ready crude -- the water cut is mostly removed. But the fact that BP was caught with its pants down on 22 miles of transit pipe shows that the potential for a nasty surprise to the Trans-Alaska Pipeline is quite real.

BP is replacing 73% of its pipes at Prudhoe. If the same percentage of the Trans-Alaska is damaged, that would be 584 miles of pipeline. That is a lot of pipe!

I'm not saying that all that pipe is damaged -- I'm saying there's a risk to at least some of it. And here's something to consider: BP only found this latest corrosion AFTER the pipe sprung a leak. But that still wasn't enough. Even after the leak, BP was content to rely on exterior ultrasound tests -- something else that proved in error -- until ordered to conduct interior ultrasound tests by the Federal government.

Why didn't BP do that extra test on its own? Are they afraid that would cut into the whole-hog profits they're reaping! BP earned $7.3 billion in the most recent quarter -- a 30% increase from last year. I think they could afford to spend a little more on maintenance.

The interior ultrasound machine is called a "smart pig." So is Alyeska Pipeline Service Company, the operator of the Trans-Alaska, sending a smart pig into the Trans-Alaska?

Now BP is only a part-owner of the field and pipelines at Prudhoe. But consider that five of the world's largest oil companies -- BP as well as Chevron Corp., ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC -- reported combined earnings in the second quarter of $34.6 billion, up 36% from a year earlier. I think they ALL can afford to spend a little more on maintance. Problems like this give the oil industry a black eye, and people in the industry work too hard for that kind of crap.

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