Wednesday, December 30, 2009

New Gold - An Interesting Gold Stock

New Gold (NGD) is a Canadian miner of gold, copper, and silver and has properties in Brazil, Mexico, Australia, Canada, and Chile. They are a small cap junior, but unlike the vast majority of future oriented juniors with explosive growth potential, they not only are producing good revenue now, they could be considered a value stock considering their rapid per share growth in everything but eps. The eps is sadly and chronically negative, but you have to suspect the new flood of revenue and cash flow may fix that:

The stock has climbed along with the gold bull since 2002 until 2006, where it was sent back to pre bull levels in the face of a very robust explosion in cash flow and revenue. For this fast growth rate, you must pay a price/sales of 3.1 and a price/cash flow of 18 - very reasonable for any kind of stock, very rare for a small cap gold stock. Why is it such a dog? Well, they are fighting with the Mexican government about environmental problems with their Mexican mine, and only two analysts cover the stock. I'm sure they have other things holding them back. The stock is severely lagging the gold miners and its own financial results. If the clouds clear, this could be a rocket.

Monday, December 28, 2009

Iran Developments

Israel's Defense Minister Ehud Barak has just given an assessment to the Israeli parliament where he said Iran will possess the technology to build a nuclear bomb by early 2010. He said they would surely be building bombs in 2011 if allowed to proceed. About a month ago, he stated that the Iranians had reached a technical breakthrough that would facilitate a quick advance in their nuclear capability. He was probably referring the the nuclear trigger, a technology that even Iran's apologists at the U.N. say has no peaceful use.

Also happening this week - a complete recall of all Israel's diplomatic crew, ambassadors and whatnot, from all over the world to meet in Israel. This is unprecedented and is causing speculation that the Israeli military has made the decision to strike Iran and this meeting is to PR it to the world when it happens.

STRATFOR, meanwhile, published an intelligence report Dec. 21 on the "invasion" by Iranian troops into Iraq to take over an oil field. This sounds alarming and had Larry Kudlow pounding the Kudlow Report desk demanding that Obama declare war immediately. But this oil well thing happens on a regular basis in that area, like a Hatfield and McCoys feud, because the border there is not defined very well and both countries claim the well. An Iranian bunch comes over now and again and puts an Iranian flag on it for a week or so, then they go back home while the Iraqis paint their colors back on it. I think I even read it's a nonproducing well - a silly, benign spat as Middle East spats go.

So why is STRATFOR so concerned with it? To quote their recent article, "what would be fairly trivial at another time and place is not trivial now". They feel it was orchestrated this time, reportedly ordered by Tehran, simply to make a point to the lynch mob assembling against them without triggering a precipitous response. That point is that Iran does not have to let Israel or the U.S. make the first move. Iran is well aware of the goings on in the intel and military community and just wants to rattle the chain of Obama and the other decision makers amidst their orderly deadlines, preparations, and any other American timetable for Iran.

This raises the whole question of who is going to throw the first punch. When you think it through, you realize that the war is going to be a sea war, not an air war. Iran's air force is not a problem for Israel nor is their air defense system (until they get the S-300). With the right bunker busters (they may wait for the MOPs), taking out the nuclear program is the least of the worries. But Iran's navy is another story. They have sophisticated anti-ship missiles and other maritime hardware with which to carry out their only real threat of war-making, and this would be fought on the waters of the Gulf and with the price of oil. They also hold the card of massive incursion into Iraq, which they hinted at with their recent stunt. STRATFOR concludes that the initial strike may not be the air strike out of the blue on the nuclear sites, but a smashup of Iran's navy in the Gulf and their military in or near Iraq. Iran faces a use-it-first-or-lose-it dilemma which may goad them into a pre-emptive strike in the Gulf to pre-empt Israel's pre-emptive air strike. Their take:

"When we look at the three Iranian options, it is clear that the United States would not be able to confine any action against Iran to airstrikes. The United States is extremely good at air campaigns, while it is weak at counterinsurgency. It has massive resources in the region to throw into an air campaign and it can bring more in using carrier strike groups.

But even before hitting Iran’s nuclear facilities, the Americans would have to consider the potential Iranian responses. Washington would have to take three steps. First, Iranian anti-ship missiles and surface vessels — and these vessels could be very small but still able to carry out mine warfare — on the Iranian littoral would have to be destroyed. Second, large formations of Iranian troops along the Iraqi border would have to be attacked, and Iranian assets in Iraq at the very least disrupted. Finally, covert actions against Hezbollah assets — particularly assets outside Lebanon — would have to be neutralized to the extent possible.

This would require massive, coordinated attacks, primarily using airpower and covert forces in a very tight sequence prior to any attack on Iran’s nuclear facilities. Without this, Iran would be in a position to launch the attacks outlined above in response to strikes on its nuclear facilities. Given the nature of the Iranian responses, particularly the mining of the Persian Gulf and Strait of Hormuz, the operations could be carried out quickly and with potentially devastating results to the global economy.

From the Iranian standpoint, Tehran faces a “use-it-or-lose-it” scenario. It cannot wait until the United States initiates hostilities. The worst-case scenario for Iran is waiting for Washington to initiate the conflict."

They will probably go ahead with the gasoline sanctions against Iran, but this really is a precursor of war. It would involve blockading - an act of war in itself. It's doubtful that gasoline starvation would work - too much of a black market would crop up- or that if they did work, it would suddenly make the Iran regime peace-loving. STRATFOR's article states:

"The Iranians signaled last week that they might not choose to be passive if effective sanctions were put in place. Sanctions on gasoline would in fact cripple Iran, so like Japan prior to Pearl Harbor, the option of capitulating to sanctions might be viewed as more risky than a pre-emptive strike. And if sanctions didn’t work, the Iranians would have to assume a military attack is coming next. Since the Iranians wouldn’t know when it would happen, and their retaliatory options might disappear in the first phase of the military operation, they would need to act before such an attack."

It's sort of like telling Barney he can put his bullet in his gun and show off a little in the Middle East right now.

"This report is republished with permission of STRATFOR"

Sunday, December 27, 2009

PZG in a Strong Technical Spot

Paramount Gold and Silver (PZG) is a Canadian gold miner with mines in Canada and Mexico. As with so many gold miners, the monetary fundamentals are quite forgettable. So I'll just point out an interesting technical feature: (click to enlarge)

The stock has had a mind of its own since mid year, slumping in the face of gold's rally and now doing a triple blast off - lifting off from both the 140 and 200 dma as well as breaking a long bull flag channel - all in the face of gold's beat down in December. This is one determined bull flag and could mean a power move up.

Saturday, December 26, 2009

The Quiet Before the BOOM

Dynamic Materials (BOOM) loves to blow up things. They use more than 30,000 lbs of explosives each day. What do they do with all that mayhem? They are the world's leading provider of explosion welded clad metal plates that fuse together dissimilar metals that can't be readily bolted or hand welded. There is a lot of demand for such things as strong carbon steel welded to things like titanium and corrosion suitable metals used in upstream oil and natural gas processing as well as other petrochemical uses, industrial refrigeration, aluminum production, power generation, alternative energy, and shipbuilding. If you think this sounds like a Chinese laundry list of everything that's good in today's growth investing, you'd be right. Dynamic Materials is a global provider with growing involvement in China and the emerging markets in general. There is, of course, a shale natural gas production boom about to happen in North America as well - fertile ground for BOOM's products.

The phenomenon of microfusion was observed as early as World War I, when bullets were fired into armor plates to join dissimilar metals that were not able to be welded by conventional methods. This also was observed in the remnants of bombed-out bridges in World War II.

It doesn't sound like it would work, but DuPont started welding things together like this on purpose by means of carefully designed explosions and offered its Detaclad process in 1959. The idea was to blast away oxide and all contaminants and join metal by force and molecular intermingling instead of heat and melting. Denver based Martin Marietta licensed this method to build jet engine parts with. In 1965, a group bought Martin's explosion cladding business, and now it is Boulder based BOOM.

It has been a fast grower the last 6 years:

The stock has been in the doghouse all year long except for a brief but severe beating down to near zero in February/March - a measly +7% 52 week return. PE for ttm is a modest 19, price/cash flow is 8.0 - pretty cheap for a stock in a sweet spot of emerging market growth that has grown its cash flow at an annualized clip of a whopping 42% the last 6 years. The recession has dented their results as you'd expect with a deep cyclical. But the stock has been hammered out of proportion to this dip and is now way out of whack with basic cash flow from operations, which is still on a robust growth track. Its technical condition is an extreme quieting pattern:

The 50 and 200 dma have accomplished a positive cross and are now both sloping up, suggesting that the stubborn resistance level at $20 will soon go BOOM.

Sunday, December 20, 2009

Solitario - A Stock of Interest

Solitario Exploration & Royalty (XPL) could perhaps be considered an overlooked stepchild among the gold stocks. If you like your juniors above that sub $1 area but with lots of future explosive growth possible, this may be your cup of tea. Unlike the typical junior, they do have current revenue. But most all of their sales still reside in the ground.

A summary of their projects was given by their CEO in an at SA in June 2007 when the stock was valued at around $4. It went to $6 before being smashed by the general market sell off: (click to enlarge)

In the meantime, they have gotten to the point where they will be doing some major drilling projects in their large copper, gold, and silver properties next year. Any positive results could quickly return the stock to where it was in mid '07, when gold was much cheaper. The drilling plans were announced yesterday .

A major rule with the junior gold miners is that they don't really find much more gold in new areas anymore compared to what improved technology is bringing out of the large deposits that have given up their easy gold already. New finds out in the middle of nowhere requiring big infrastructure build is hard to finance and profit from. You want juniors who find new gold in large existing formations where infrastructure has already been paid for. A large gold/silver field in Mexico where XPL joint ventures with Newmont Mining fits that bill.

Technically, the stock looks to be just now regaining consciousness from the '08 party. A resistance level at $2.20 has developed and the 50 & 200 dma have crossed and gotten nicely upsloping and parallel - often a sign that a stock is getting its act together. The gold pullback hasn't phased its approach to the resistance level yet. If it breaks the formation, it may run pretty good.

Another positive is an apparent complete absence of analyst coverage. I can't find any. That's good. Cramer's analyst rule is zero is best, 1 to 4 is OK, much over 5 is sell.

Monday, December 14, 2009

Emerson Radio

Emerson Radio (MSN) was founded in 1915 as Emerson Phonograph when the phonograph was the only electronic gizmo in town (other than the telegraph). Now they make all sorts of marvels and have a subsidiary in China. This is one company that has seen a lot of changes. Radio came along and put Emerson Phonograph into receivership. It was revived as Emerson Radio and Phonograph in 1924. The along came the Great Depression, but they introduced the "peewee" radio in 1932, bursting them out of obscurity. They sold some of the first TVs in 1947. "Phonograph" was finally dropped from their title in 1977. They were the first to make the clock radio and have patented SmartSet, making them so that they automatically reset to the correct date and time after any power interruption. Don't you just hate those flashing "12:00"s ? They seem to have a long history of morphing into success no matter what happens.

The stock is currently in an interesting condition having been beaten senseless by the Great Recession. The eps has indeed suffered, but if you look at the rest of the picture you see this:

Revenue hasn't gone away and cash flow from operations has climbed to all time highs producing a very cheap price/cash flow of 2.6! If the earnings follow the cash upward, the stock could break out nicely. Technically, that appears to be what is happening:

If you like the cup and handle, this is breaking one. I like the behavior over the February/March market event, no price or volume reaction - all the sellers had left. The volume is only very slowly creeping back, certainly no topping type of volume yet, just the start of a stair step climb pattern with the steps punctuated emphatically with volume. And the A/D has just broken a long slow downtrend line and looks pretty strong.

Friday, December 11, 2009

Stump the TA Chump

It looks like the market is playing it's dastardly little game of stump-the-technical-analyst-and-make-him-look-like-an-idiot again. This has been a favorite all year long. Only an idiot would have bought anything in April during an obvious sharp bear rally. Bear markets don't end with a wild rally off a wild sell down - any smart technician knows that. All the oscillators read "suckers rally". But the suckers were right. And in July, the market was obviously rolling over having a lot of trouble clearing the descending 200 dma. I wrote a post here More Bear Signals on July 14 on why any sensible TA man would be short to the hilt at that point with the market's driver turning the wheels south. However, as I pointed out back then, the only thing that's been right all year is the game of follow-the-leader-groups, the leader groups being retail, tech, and the BDI (Baltic Dry Index). They were a lonely group back then calling for a north turn out of the market's funk, and they were right again as they had been in April.

Now we see the market technicals attempting to fool us some more:
Publish Post

Any technical analyst knows the small caps fizzle first in a run, and in early November we were having a major flameout with the Russell. Also we have this:

Here we see some major negative RSI and volume fade. So we should be an idiot and buy if the leader groups are right again. If you check the RLX, QQQQ, and BDI, they are sticking out their tongues at the technical analysts and saying "see you at the finish line, chump".

Friday, December 4, 2009

Oddsmakers Take On Iran

I posted yesterday on the well informed opinion of the intelligence service STRATFOR on war with Iran soon. As summed it up, the opinion is that the odds have recently (over the last 3 months) gone up "exponentially". They did not assign a probability figure to it but said that, while war is not inevitable, it is much more likely while pointing out that Israel seems to have assumed it to be a certainty in their intel planning.

These two entities, STRATFOR and Israeli intelligence, know more than the rest of us. So what do "the rest of us" think? Let's look at for a collection of opinion who've studied it seriously enough to wager money on odds contracts. They bill themselves as "THE Leading Prediction Market" and invite you to "tap into the wisdom of crowds". This wisdom sets a probability for events of interest to occur by a certain date. For example, what would you say are the odds for Mike Huckabee to be the Republican presidential nominee in 2012? The pricing of the current contract you can buy has this chance at 10%. Turning to the markets, there was a running bet all year on the U.S. GDP declining 10% or more off the peak between Q4 2008 and Q4 2009 (inclusive). The wisdom of the crowds had this probability spiking to 50% in late February when the market was spiking toward the floor. It's currently at 0.9%. So this wisdom, as far as the markets are concerned, may be of use as a contrary indicator.

They have had a series of contracts for an Israeli and/or U.S. air strike on Iran over the last few years. I checked out the two covering about a year period for 2008 and 2009 and compared them alongside the sabre rattling out of Israel about an imminent strike. As the charts below show, there is some correlation between this sabre rattling and what the wisdom of the crowds think about a war (click to enlarge)

In both years, mid-year sabre rattling by Israeli officials roughly accompanied a chance of war outbreak spiking to as high as 40%! But then a slide into year end - current quote for a strike by March 31 is 11%.

But, as was the case with the February GDP/market outlook, the smart opinion may be just the inverse of this pattern.

The quieting pattern into year end isn't what you would expect from the saber rattlers if we are building to a blowup. But consider the observation of Andrew Apostolou and other analysts interviewed a few months ago on Israel's willingness to strike Iran.

"... it's unlikely, they say, that Prime Minister Benjamin Netanyahu will reach that conclusion in the coming weeks or months...Israel is locked in a wait-and-see mode, planning to let U.S. diplomacy exhaust itself. Matthew Silver, a historian at Emek Yezreel College in the Galilee, agrees: "Netanyahu figures, "Okay, let Obama talk to the mullahs. It's a preordained failure." That the Israeli prime minister is making loud noises about a possible military strike, Apostolou says, suggests one won't come anytime soon. "If the Israelis really wanted to scare the Americans, they'd say nothing. When the Israelis go really quiet, that's when you have to start worrying. But in the meantime, Israel will continue to match Iran's belligerent signals."

And ran a July 13 article titled "The U.S. Should Worry When Israel Gets Quiet". Well, Israel does seem to have "gone quiet". Lately, their pronouncements have been preferring diplomacy if the military option is even mentioned. And now they say things like what Michael Oren, Israel's ambassador to the U.S. recently said on August 16 - Israel is "far from contemplating" a strike on Iran. That statement reminds me of the kid who denies eating any cake with chocolate smeared all over his face. It's interesting that the quiet zones in the above chart for this year and last coincide with the optimal time window of the year for a strike, September to November, when the prevailing monsoon winds keep the radioactive fallout and dust primarily in Iran and out of neighboring countries. I suspect that they were on the verge of doing the strike last year, but the financial crisis may have aborted it.

The opinion that knows, Israeli officialdom and STRATFOR, indicate the opposite of the slumping odds out to the March 2010 contract shown above. The current contract goes out to June 2010, and its current quote is a little higher at 18%. But all this would imply that the stock market impact would be severe - it doesn't seem to be very highly discounted.

Thursday, December 3, 2009

Is Iran Going To The Woodshed ?

More evidence is coming to light suggesting that investors should perhaps form a strategy around a massive strike on Iran coming up soon. I began posting on this emerging threat at my blog back in August - see

Art Cashin's Strange Comments - Aug. 21
Silence May Not Be Golden For Iran - Sept. 3
AWACS Prep In Iran Theatre - Sept. 24
Investing In Trouble - Oct. 3
Reading Between The Lines On Iran - Oct. 28

An Oct. 13 article over at discusses STRATFOR's new analysis. This geopolitical intelligence service is very well respected and is not given to alarmist rumor mongering. In late 2008, when there were many signs that a strike was being readied, an Aug 3 story by Reuters read "U.S. Israel attack on Iran Unlikely: STRATFOR Founder". The main reason was the growing financial crisis, which, as I've mentioned before, may have been the only stay of execution for Iran. But now, the well considered opinion reads "STRATFOR: Odds of War With Iran Spiking". Quoting their write-up:
"A new topic has rocketed to the top of STRATFOR's international concerns: the possibility of a war between the United States and Iran. There has been much discussion of this topic for years now, and STRATFOR has tended to dismiss it; there is a great chasm between remedial uranium enrichment programs and having a deliverable nuclear weapon. But events in the third quarter added credibility to the scenario...
The opening weeks of the fourth quarter will be dominated by 11th-hour negotiations primarily between but not limited to Washington and Tehran to see if war can be avoided. Washington and its allies will seek formal, transparent oversight for the entire Iranian nuclear program, and failing that, sanctions on the Iranian sector that is most vulnerable to foreign pressure: gasoline imports."
But STRATFOR doesn't believe gasoline sanctions have any realistic chance of working even if Russia seriously wanted to cooperate (which is doubtful) because the black market opportunities are too uncontrollable and too lucrative. Russia, Israel, Obama, and everybody knows this. They may go through the motions of more meetings and sanctions talk, but the enrichment deal was probably the last chance for a peaceful resolution.

Two news stories that STRATFOR says were deliberate intelligence leaks are of particular interest:
"Two major leaks occurred this weekend [the weekend of October 2-4] over the Iran matter.

In the first, The New York Times published an article reporting that staff at the International Atomic Energy Agency (IAEA), the U.N. nuclear oversight group, had produced an unreleased report saying that Iran was much more advanced in its nuclear program than the IAEA had thought previously. According to the report, Iran now has all the data needed to design a nuclear weapon...

The second leak occurred in the British daily The Times, which reported that the purpose of Israeli Prime Minister Benjamin Netanyahu's highly publicized secret visit to Moscow on Sept. 7 was to provide the Russians with a list of Russian scientists and engineers working on Iran's nuclear weapons program...

The message was twofold. First, previous assumptions on time frames on Iran are no longer valid, and worst-case assumptions must now be assumed. The Iranians are in fact moving rapidly toward a weapon; have been extremely effective at deceiving U.S. intelligence (read, they deceived the Bush administration, but the Obama administration has figured it out); and therefore, we are moving toward a decisive moment with Iran. Second, this situation is the direct responsibility of Russian nuclear expertise. Whether this expertise came from former employees of the Russian nuclear establishment now looking for work, Russian officials assigned to Iran or unemployed scientists sent to Iran by the Russians is immaterial. The Israelis — and the Obama administration — must hold the Russians responsible for the current state of Iran's weapons program, and by extension, Moscow bears responsibility for any actions that Israel or the United States might take to solve the problem."

This adds a new dimension to the Middle East problem - a strike on Iran may now be tantamount to a strike on Russia. The trip to Russia by Netanyahu with the results of Israel's undercover intel on the Russian scientists' work developing Iran's nuclear bombs for them was probably not a "stop this right now" visit. STRATFOR says the Kremlin keeps very close tabs on the whereabouts and activity of these people, and they know they are doing this. Rather this appears to have been a "the jig is up" visit by the Israeli brass. As the STRATFOR piece phrased it:
"Given that this specific charge has been made — and as of Monday not challenged by Iran or Russia — indicates to us more is going on than an attempt to bluff the Iranians into concessions. Unless the two leaks together are completely bogus, and we doubt that, the United States and Israel are leaking information already well known to the Iranians. They are telling Tehran that its deception campaign has been penetrated, and by extension are telling it that it faces military action — particularly if massive sanctions are impractical because of more Russian obstruction.

As the spy game goes, you intentionally blow your cover when you are sure you're not going to be needing it for awhile. In a section of the analysis they titled "A Question of Timing" STRATFOR reasons:

But there is a mystery here as well. To have any impact, the Russian involvement must have been under way for years. The United States has tried to track rogue nuclear scientists and engineers — anyone who could contribute to nuclear proliferation — since the 1990s. The Israelis must have had their own program on this, too. Both countries, as well as European intelligence services, were focused on Iran's program and the whereabouts of Russian scientists. It is hard to believe that they only just now found out. If we were to guess, we would say Russian involvement has been under way since just after the Orange Revolution in Ukraine [late 2004-early 2005], when the Russians decided that the United States was a direct threat to its national security.

Therefore, the decision suddenly to confront the Russians, and suddenly to leak U.N. reports — much more valuable than U.S. reports, which are easier for the Europeans to ignore — cannot simply be because the United States and Israel just obtained this information. The IAEA, hostile to the United States since the invasion of Iraq and very much under the influence of the Europeans, must have decided to shift its evaluation of Iran. But far more significant is the willingness of the Israelis first to confront the Russians and then leak about Russian involvement, something that obviously compromises Israeli sources and methods. And that means the Israelis no longer consider the preservation of their intelligence operation in Iran (or wherever it was carried out) as of the essence.

Two conclusions can be drawn. First, the Israelis no longer need to add to their knowledge of Russian involvement; they know what they need to know. And second, the Israelis do not expect Iranian development to continue much longer; otherwise, maintaining the intelligence capability would take precedence over anything else.

It follows from this that the use of this intelligence in diplomatic confrontations with Russians and in a British newspaper serves a greater purpose than the integrity of the source system. And that means that the Israelis expect a resolution in the very near future — the only reason they would have blown their penetration of the Russian-Iranian system.

Iran, well aware of all this, is behaving as if someone has just told them "the jig is up". They are frantically digging hundreds of new missile silos, held their big air defense drill, and are blustering to the world now that they are planning to build 10 new nuclear facilities, a behavior a European official recently described as "childish". Perhaps the child has just been made aware that he is in for a severe spanking.