Monday, October 24, 2016

Sold my EOG Resources moving into Chinook Energy

When oil prices were near their bottom last year I decided, based on previous oil cycles, to buy the best shale operator out there as I felt that prices would eventually recover. 

I bought EOG Resources and as oil prices recovered the price of EOG also recovered. I sold the shares the other day for around a 25% gain including dividends. The reason I sold is that I have found a couple of smaller companies that I think will give me a higher gearing to increasing energy prices. 

I believe energy prices will heading higher and although EOG will do well it is not going to double from here. The three companies I am adding to the portfolio are smaller and riskier but I think they will increase more as energy prices go up. 

The first company I bought is Chinook Energy (CNKEF). I am becoming increasingly convinced that the Montney shale in Canada will be the next hot shale play. I got the idea for Chinook from a writer I follow on Seeking Alpha who goes by the nom de plume "Value Digger". I give credit where credit is due. His article describing why Chinook is undervalued and has 200% upside from its current price can be found here.

The second stock I am adding is Jericho Oil (JROOF). Jericho is a small oil and gas operator with properties in Oklahoma. The company follows a classic value investor methodology. They have been buying distressed producing oil properties during the recent down cycle in oil. The company purposefully is staying away from hot areas like the Permian because the costs for acquiring properties is far higher than the areas in Oklahoma where they are operating. 

Basically Jericho has cashflow neutrality at around $20 per barrel. As oil prices go higher they will look to develop there proved but undeveloped resources. They basically will grow slowly at current oil prices but if prices get above $60 per barrel they have significant upside optionality. That is a business model I like and is similar to Altius Mineral's strategy of doing deals in resource market down cycles. Jericho's most recent investor presentation is here.   

The third company is on my watchlist as it is temporarily overbought. The company is Blackbird Energy . They are a small company with a nice land package in the Montney shale. They have quite a bit of development going on around them and several deals have happened in their neighborhood. They have some infrastructure that is close to being brought online which will lead to some initial production coming online later this year. This is more speculative and obviously has more upside. Nevertheless it is only being watched as the price has run recently due to interest in the Montney Shale. 

Sunday, October 23, 2016

The US cannot be saved

Fred Reed:


Let’s not delude ourselves. America is ruled by the Five Cities, Boston, New York, Washington, Tel Aviv, and Hollywood. The rest of us just pay taxes. The heart of the beast is New York, the Ivies being its nursery and Washington its storefront.

To a practicing curmudgeon, the presidential contest is amusing but unimportant. Hillary will win, whether she wins or not. She is just the wave front of deep and fast-flowing currents of decay that cannot be stopped. Trump may try, but he cannot succeed. We live in a dying culture and, soon, a diminished country. It cannot be saved.


There is no solution. Complaining about degraded music, semi-literacy, and barnyard taste accomplishes nothing. Soon there will be none left who remember what has been lost. Once broken, the chain cannot be repaired.

It is over. Putrefaction is irreversible, either by Ronald or Lucretia.

The shift to the economic pattern of the Third World, the concentration of wealth in the hands of a few, proceeds apace and there is nothing to do about it. Impunity, normal in Guatemala, allows corruption to go unpunished. Think sub-prime. Hillary is as crooked as any president in Latin America, everyone knows it, and nothing happens to her.  The extremely rich,  the famous one percent,  control Wall Street, the media, Congress, banking, the social media. The well-being of all but the rich declines. It will go on. There is no way to change it. Who will do it? How?

I do not agree with everything that Fred Reed says bit I do agree with this assessment. I have said the same for years. If you have the means you need to diversify yourself around the world. Buy some property in a place you would not mind living in. It can serve as a bolt hole so you have somewhere to go to when the free shit runs out. It also gets some of your money outside of the US as property purchases abroad are still not reportable to the authorities, at least not yet. 

Next time the economy heads down and it will, 2008 will look like a boom time. There will be blood when the money runs out. 

Jim Grant: FED may never raise rates

The Fed is bluffing, and no matter what happens with interest rates, it might be best for investors to stick with gold, this according to widely known Fed critic and Wall Street pundit Jim Grant. Speaking with Kitco News, he argued that the gold price will not be driven by the next move by the Federal Reserve, although most recent gold price fluctuations have been the result of shifting rate hike expectations.

Instead, “it’s the revelation that we’re walking – or running – down the wrong path, and that we must regroup and formulate a monetary policy that’s based upon a lasting standard of value,” the popular newsletter publisher said. “I think a bet on gold, to me, is actually an investment in monetary disorder. It’s not a hedge against it because we have monetary disorder; I think what us, gold bugs are waiting for is the spreading perception that we have monetary disorder.” 

The five year bear market in gold is over. The recent pullback is just that a correction in a long term bull market. I have been using the pullback to buy additional shares in some of my favorite gold companies. 

Fitch upgrades Cyprus

Cyprus Mail:

Fitch Ratings has upgraded Cyprus by one notch from ‘B+’ to ‘BB-’with a positive outlook on continuing strong progress in its adjustment following the 2013 banking crisis.

Cyprus exited its EU and IMF bailout programme in March, outperforming fiscal and economic targets. It also successfully lifted capital controls and has taken steps to restructure its banking sector.


The banking sector is gradually strengthening, proven by the rise in deposits and stable capitalisation.
“Deleveraging is ongoing, with overall sector assets down to 3.7 times the GDP in June 2016 from almost six times in 2009,” Fitch said.

The Bank of Cyprus — placed into resolution in 2013 and recapitalised partly through a bail-in of depositors — has reduced its reliance on emergency liquidity assistance, to €1.5bn by August 2016 from over €11bn in April 2013.

The property sector remains illiquid but prices seem to be stabilising at around 30 per cent below their 2008 peak.

Continued affirmation of the recovery in Cyprus. 

Saturday, October 22, 2016

Colombia economy seen bottoming and growth returning in 2017

Finance Colombia:

After years of being one of the best economic success stories in Latin America, 2016 has proved to be a rough one for Colombia. While it still is expected to finish the year with the highest growth among large economies in the region, outside of Peru, the forecasted GDP uptick or around 2% to 2.5% pales in comparison to better times.

Moreover, this year has been marked by the inflation in more than a decade and a half, deteriorating macroeconomic fundamentals, and a rejected peace deal that has sent the nation into political chaos. But a new economic forecast from Bancolombia suggests that the worst will soon be over.

“We believe that in the second half of 2016 the Colombian economy is bottoming, and from 2017 a turnaround that will lead to a more constructive macroeconomic environment will consolidate,” wrote the nation’s largest bank this week. “The catalysts of this transformation will be the moderate increase in the terms of trade and growth of trading partners, falling inflation and the cycle of rate cuts to be started soon by the Central Bank, the faster pace of implementation of infrastructure projects, improving the confidence of agents and stabilization of the external imbalance and the exchange rate.”

I see oil prices heading higher over the next couple of years which will help the Colombian Peso. In addition perceptions on Colombia have been changing from its previous perception as a failed narco state too a dynamic, diversified, emerging market. The coming peace deals with FARC and ELN will also change the views of outsiders and will allow the the government to redirect resources from counter insurgency to infrastructure and development.

My portfolio has Bancolombia and Canacol Energy in it along with Groupo Aval.

Property prices rise in Cyprus

Cyprus Property Prices:


The Property Price Index has recorded increases in almost all cities and asset classes, with significant increases being recorded in Larnaca area, whilst other cities are progressively bottoming out. Larnaca recorded the largest quarterly increase in apartment prices (1.1%), while the largest rise in house prices (1.1%) was recorded in Paphos. The values of holiday homes rose 2.7% for apartments and 1.1% for houses.

This news is important for my holding in Bank of Cyprus. As property prices recover it makes it easier to reconcile and dispose of properties that the bank has had to repossess due to defaults by borrowers. This is another example that countries just do not dry and blow away after a financial crisis. 

If the correct policies are enacted the healing effects can be eventually be seen. This also means that asset prices get revalued to reflect this healing process. I believe that is happening in Cyprus now.

Chinese to invest $2 billion in agricultural SEZ


“The first investment capital on the special economic zone will be about $2 billion in developing a 300-hectare site in western Kampong Speu province, where storage facilities, and packaging and processing factories for agricultural products will be built,” he said.

“With this MoU, the firm will start contracting farmers to grow a variety of crops and sell to our company to be processed and then exported.”

He said that mangoes would be the first product the firm would buy from local farmers, but suggested that other fruit and vegetables would also be sought.

He stressed that the venture would also act as a magnet to attract other Chinese agricultural firms to begin operating in Cambodia.

“Our SEZ will attract more and more Chinese enterprises to invest in agriculture processing factories in Cambodia...China has many processing companies and they are waiting for investing in Cambodia, so this cooperation is a good start,” he said.

I have not talked about Cambodia for a long time. Nevertheless I am still excited about its prospects long term. Foreign Direct Investment like this investment by the Chinese will be a key to Cambodia's growth over the upcoming years. I am playing Cambodia with my holdings in NagaCorp which has a huge casino hotel and entertainment complex in downtown Phenom Penh. The company has a multi-decade monopoly on this market. 

Thursday, October 20, 2016

Joe Lowry interview on lithium production and pricing

Investing News:


I believe in 2015 the total lithium market was approximately 163,000 metric tons and will grow to about 182,000 metric tons in 2016. I only use lithium that was sold as a chemical. If someone uses ore in an end-use it’s not in my numbers. I presented the new numbers at a Benchmark Minerals event in Silicon Valley early this month.


 I have a really hard time–even with my moderate 2020 demand number of 312,000 metric tons keeping the supply ahead of demand in my model. It stays in balance to 2020 only with substantially more hard rock capacity – Mt. Marion, Mt. Cattlin and later Pilbara converted to lithium chemicals in China for the most part. The number of suppliers will increase. Companies like Ganfeng and Tianqi will be increasingly significant. Others like FMC who fail to expand resource capacity will decline in significance.

It seems that supply will have a problem meeting demand in the mid term. Higher prices will cure that situation. I like to follow Lowry's research as his whole career has been in the lithium market and he probably knows more about it than anyone I can find. he usually posts his views on LinkedIn but he has a twitter account which I also follow. If you are interested in the Lithium space you should consider his opinions. 

Wednesday, October 19, 2016

Portfolio sale: Orocobre

I am going to start cleaning up the portfolio and culling some of the under performers. Orocobre is one of the under performers in my eyes. I absolutely love the lithium space and I am going to defer to an expert like Joe Lowry who is known as Mr. Lithium. He has not been impressed with the performance of the actual Orocobre business.

Orocobre has been an under performer from the perspective of delivering higher grade material. At some point the true performers will emerge and the companies that cannot perform will see a lower stock price.

My pure play lithium producer is Galaxy Resources. However I have not added it to the portfolio as of yet. That should come soon.

We sold half the initial position back in April for a 105% gain. We sold the remainder of the position for a 92% gain.

Great article on cheap Russia stocks

Sovereign Investor Daily:


Russia represents an opportunity because the value of Russian assets — particularly stocks and the local dinero — are mispriced. Sure, reasons exist for a certain amount of weakness in both Russian stocks and the ruble. The economy thrives on oil, and low oil prices have taken their toll to a degree. But much of the asset-price destruction Russia has experienced in the last year or so is tied to a narrative that is dead wrong — the U.S.-fueled theme that Putin wants to rebuild the Soviet Union, that the Crimea annexation was proof of that and that he now has designs on tiny Baltic states or Poland.

I really agree with the above statement and it represents my whole investment thesis. That being identifying undervalued and mispriced securities and then buying them and waiting for the market to realize the undervaluation and correct the mispricing. I like the Russia ETF (RSX).

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