Portfolio review of the week July 4th 2010

On Friday the Dow Jones Industrial Average finished down 46 points , or 0.5%, to 9,686 its seventh day of falls, with a weekly drop of 4.5%. The S&P 500 moved down 5 points, or 0.5%, to end at 1,022, making it a 5% drop for the week. The Nasdaq Composite Index fell 10 points, or 0.5%, to 2,091, a drop of 5.9% for the week. The FTSE 100 gained 32 points or 0.7% to 4,838, but fell over 4% on the week.

The last time U.S. markets fell every day during a week was in October 2008 following the collapse of Lehman Brothers. On Friday, U.S. employment data disappointed with nonfarm payrolls falling by 125,000 in June, compared with 430,000 jobs created in May, as the number of temporary census workers dropped by 225,000. The unemployment rate fell to 9.5%, the lowest rate since July last year and down from 9.7% in May. U.S. factory orders declined in May, posting the largest drop in 14 months as transportation related orders declined heavily.Overall economic data for the week was below expectations which helped fuel the sell off. Overall investors are struggling to find reasons to buy stocks and technical investors are closely looking whether the S&P 500 will breach the key 1000 level during July.

Commodity stocks were weak for most of last week as worries about a U.S. and European double dip recession and a potentially slowing Chinese economy hit sentiment. On Friday, this negativity was partially reversed by the the Australian government’s decision to replace the resources ‘Super Tax’ with a less onerous alternative called the Mineral Resource Rent Tax (MRRT) which would apply to iron ore and coal from July 2012. Bank stocks were also moved down by renewed fears about sovereign debt in the euro zone.

The reversal in sentiment during the second quarter of 2010 has been significant with falls of around 10% in most indices wiping out gains made during the first quarter. The FTSE 100 has fallen more than 13% since the start of the year, with BP contributing a fall of 200 points in the index all by itself. Whereas investors thought the economic recovery was assured during the early part of 2010, now it all looks very different. With governments implementing tough austerity budgets to bring their deficits under control and the the effects of the Chinese stimulus package beginning to wane the rest of 2010 looks less rosy.

With all this negative sentiment, the Contrarian Investor UK portfolio has begun to find value again in some sectors. With ITV dropping below 50p, a purchase was made for the portfolio. Though positions were aggressively trimmed during Q1 to take advantage of the gains, holdings in Ithaca Energy (IAE) and Coal of Africa (CZA) have performed particularly poorly during the last 2 weeks. These remain good quality stocks were the energy and commodity sectors have been hit. Overall I am not taking an aggressive position on the long or short side but any further large falls will be seen as a buying opportunity. I would be surprised if the Dow fell below 9,000 since we are not in 2008 territory by any means.

Portfolio review of the week June 27th 2010

The Dow Jones Industrial Average closed down 9 points, or 0.1%, to 10,144 on Friday, with a 2.94% fall for the week after the U.S. government revised 1st quarter economic growth estimates downwards led by weak consumer spending. The Nasdaq Composite climbed 0.27% to 2,233, but closed down 3.7% for the week. A notable faller on the Nasdaq was Research In Motion which dropped 11% to $52.2 after the company reported a 20% rise in first-quarter profit but disappointed on shipments of Blackberry's. The Standard & Poor's 500-stock index rose 0.29% to 1,076 but fell 3.7% on the week. Financial stocks moved up, helping to counter the move down in consumer related stocks, after the new financial regulation package was agreed and U.S. politicians in a form which was felt to be less onerous than previously feared.


The FTSE 100 was down 54 points to 5,046 on Friday, with a 4.7% or 253 point fall on the week. BP (BP.) continued its downward spiral closing at £3.04 on fears that potential storms in the Gulf of Mexico would hinder the efforts to stop the flow of oil from the leaking well. Commodity stocks had a particularly poor week as worries about a double dip resurfaced and metal prices softened. Generally sentiment took a tumble and the bears are firmly in control.


As I mentioned a few weeks ago, positions were trimmed back significantly as I had concerns about the market strength. For this reason, the portfolio is relatively limited at the current time. I am holding Coal of Africa (CZA) which has reversed back to 105p, my original purchase price and Ithaca Energy (IAE) which has had another poor week, finishing at 134p, down 10%. However, I am hopeful of a reversal for this company.

Timing is everything for GW Pharma shareholders today

After moving up 9% to 156p early in the day, GW Pharma (GWP) succumbed to some heavy profit taking and finished down 6.4% at 132p. News from the company's commercial partner Bayer that Sativex would be priced at £11 a day on the NHS with expectations of sales in the UK of around £11 million and £50 million in Europe were at the bottom end of some analysts expectations and this probably served to drive sentiment the wrong way. It was certainly a case of excellent timing today for those shareholders able to sell their stock over 150p given it lasted for less than an hour. As I said on the blog yesterday, I do not see catalysts to push the share price much higher until tangible sales of Sativex come through which are ahead of expectations, since the larger milestone payments relating to European approval are now in the bag.

Portfolio review of the week June 19th 2010

The Dow Jones Industrial Average rose 16 points, or 0.16%, to 10,450 on Friday. The index climbed 2.4% on the week. Sentiment was helped by a report from Caterpillar (CAT) that it had achieved a 38% year-over-year increase in machinery sales in Asia for May giving signals that demand in the region was still robust despite concerns about the strength of the recovery. The Nasdaq Composite rose 3, or 0.1%, to 2,309 on Friday, making seven straight days of gains for the index. For the week the index was up 3%. The Standard & Poor's 500 index gained 1.5, or 0.13%, to 1,117 and climbed 2.37% this week. The FTSE 100 failed to achieve eight straight days of gains with a fall of 3 points to 5,251 on Friday, giving a rise of 1.6% for the week. The index was boosted by a partial recovery in BP (BP.) during the week after the company agreed to ring fence $20 billion in an escrow account to cover potential liabilities from the Gulf of Mexico spill and said that it would suspend its dividend giving reassurance that the company could cover the rising costs.

Overall sentiment improved considerably last week, with fears about the health of the European debt situation and continued Asian growth forgotten for now. However, I am sceptical about the strength of this rebound as these concerns have not disappeared by any means and the continued rise in the gold price to $1,258 an ounce gives an indication that investors continue to be concerned about the strength of the key currencies, notably the dollar and euro, with the impact that debt will have on future inflation prospects. Whereas investors were happy to park cash in dollars in the past, gold now seems to be the preferred safe haven. Whether the gold price continues to rise unabated is another matter, given its 35% increase in the last year.  With reservations about the stock markets at this time, I am continuing to take profits on these upward moves and buy on the dips. I await the next major panic selling event when I am bulk up my holdings. The timings of any lurch downwards is always the uncertainty in trading but I do not feel inclined to put all my cash to work right now. The U.S. second quarter earnings season in July will a good opportunity to increase my trading exposure.

The Contrarian Investor UK portfolio is a little light this week after some positions were sold. I wait for now for the right buy points.

GW Pharma (GWP) - After 9 years  of waiting, GW Pharma share holders were finally rewarded on Friday with the news that Sativex had been approved by the U.K. regulatory agency the MHRA. A press conference will be held next week jointly by Bayer and GW to formally announce the launch of the product. The shares rose 9.3% to 141p after a 5% increase on Thursday, making it a 19p or 15% rise for the week. Although I believe that Sativex should be a commercially successful product for the company, I do not foresee that there are significant short term catalysts to boost the share price much further than the 140-150p range. For example, final approval in Spain is expected to take several months more and European roll out will not occur until early 2011. Furthermore, there is a good possibility of profit taking moving the price down . For this reason, I decided to sell my final holding in GWP on Friday. Trading in and out of this stock has proved to be an excellent investment over the last few months, illustrating that for these smaller companies, short term trading can produce better results than buy and hold. 

Coal of Africa (CZA) - Following the £55 million fund raising earlier in the week at 110p, the shares finished the week at 113p, a rise of 8% on the week. I continue to hold for a rebound in this stock after topping up at 105p.

Ithaca Energy (IAE) - IAE finished broadly flat for the week at 148p despite a relatively upbeat AGM where it was confirmed that the company had $50 million of cash with no debt as well as a rising production outlook. Continuing to hold.

ITV (ITV) - After a nice move up to over 58p this week as sentiment recovered and revenues get a boost from the World cup I have taken profits in this stock. A move back to 51-52p would signal a buy back opportunity.

RockHopper (RKH) and Falkland Oil and Gas (FOGL) - After assessing the opportunity for the Toroa prospect which is currently beng drilled by FOGL, I have decided to divest my holding. After the good fortune on Rockhopper earlier in the year I have decided not to push my luck. The geological structure on the Toroa well is not linked to the Sea lion Rockhopper find. I continue to hold RKH.

GW pharma sees price action as Sativex approval finally looms

GW pharma (GWP) moved up around 10% early this afternoon but fell back to close up 5% at 128p. Although volumes were not dramatic on the buy side, this move is presumably linked to imminent Sativex approval in the U.K. and/or market makers adjusting bid/offer levels on a shortage of stock for a larger buyer waiting in the wings i.e. encouraging profit taking by smaller shareholders as their positions increased in value.

Coal of Africa raises additional funds

South African coal miner, Coal of Africa (CZA), yesterday raised £55 million through a placing at 110p. At only a 0.2% discount to the previous day's closing price this confirms institutional support for the Coal of Africa story.

The company will use the proceeds to provide Makhado mine bulk samples (US$7.5 million), Makhado Definitive Feasibility Study (US$6.5 million), potential acquisitions (US$15 million), U$20 million to repay the existing JPMorgan working capital facility and US$20 million for general working capital.

The shares closed down around 2% at 107p which gave a further opportunity to top up the holding. The company announced on Tuesday that the main market London listing and would be delayed until November to enable the required listing requirements to be met, in particular the 2nd quarter financial results.

Given the drift down in CZA's share price over the last 2-3 months back to the 105p+ level, hopefully the placing will now give a floor and enable a recovery back to £1.50 as production continues to ramp up.

Market remains positive

The markets remained positive today after the euro continued it's rebound against the dollar, hitting 1.23 at it's high, increasing appetite for riskier assets. The DOW is currently up 93 to 10,283 and the FTSE 100 closed at 5,218, up 16. Worries about Spanish banks access to funds, another downgrade of Greek debt, and weak U.S. housebuilders data were offset by positive economic data. A bid for BSkyB by news international helped offset weakness in the Ftse 100 caused by further falls in BP. The oil giant was pressurised by a debt downgrade and calls to ringfence up to 20 billion dollars to cover claims from the Gulf of Mexico spill.

Portfolio review of the week June 12th 2010

On Friday, the Dow Jones Industrial Average gained 38 points, or 0.4%, to end the week at 10,211 (up 2.8% for the week). The S&P 500 Index gained 5 points, or 0.4%, to 1,091 (a gain of 2.5% for the week) and the Nasdaq Composite Index gained 25 points, or 1.1%, to finish at 2,243 (a gain of 1.1% for the week). The FTSE 100 rose 31 points to 5,164, a rise of 0.7% on the week.

Markets were driven upwards by some encouraging consumer sentiment data in the U.S. and receding fears about the European debt situation. Overall the week proved highly volatile as traders worried about the potential impact of further sovereign debt crises such as Hungary. However, such volatility sometimes offers up some excellent trading opportunities. For example, for those investors with the nerve for it, BP offered some good "bottom fishing" trades and economically sensitive stocks like U.S. industrial company Caterpillar (CAT) showed sufficient moves over one or two day period to enable day trading profits. It seems clear that the battle between the bulls and bears will continue for the foreseeable future. Hopes of strong results from the quarter two earnings season starting July and positive consumer related data will be looked upon with interest by market optimists, whilst continued fears of euro zone defaults and a slow down in China will fuel the bears.

Contrarian Investor UK believes that any moves below 10,000 on the DOW and to the 5,000 mark on the FTSE are good buying opportunities as despite the threats to recovery, the global economy seems to have left recessionary pressures behind it, albeit with the help of massive government stimulus packages (notably the U.S. government's). The down side of all this stimulus and previous periods of high spending is that many countries including the UK are now being force to pay down the huge debt burdens with severe austerity packages which may crimp the bounce back to economic health. So this remains a trading environment, buying on the peaks and selling on the dips. I for one would not be an advocate of buy and hold and I am continuing to trade in and out of favoured stocks where I know the trading pattern and can take advantage of weakness.


BP (BP).) - A few trades were made in BP this week. Some failed, triggering 5% guaranteed stops but others succeeded, notably one initiated at £3.40 when sentiment hit rock bottom on Thursday morning after a 15% fall in the U.S. market the night before. Overall profitable but I was wishing that I had more conviction when the company moved so low. But the move down from £4 + was so rapid, I felt that caution was prudent especially with the bashing coming from across the Atlantic and the likelihood of dividend suspensions driving out income investors. It now seems that value investors looking for stocks with low future price/earnings multiples have begun to buy in.

GW Pharma (GWP) - A volatile week for GW pharma, with news of Sativex UK approval anticipated by the end of the month. It finished at 122p, up 5% for the week after moves to the 113p level earlier. Continuing to hold a reduced position after the interim results on anticipation of positive news.

Coal of Africa (CZA) - Coal of Africa fell back to my purchase level after pressure on commodity stocks this week. I have topped up at 105p given my conviction in this company and the share price levels currently are below those seen when Vele mine approval was still to be received. Upside of the remainder of the year seems likely with increasing production from its key coal mines in South Africa.


ITV (ITV) - With the TV company's shares dropping to 51p on Wednesday, I took the opportunity to buy in and then sold most of my position at a 10% gain on Friday after a move above 56p. Given the trading range of this share, moves down towards 50p seem to be invariably profitable and with earnings likely to be strong in Q2 due to the World cup it is a good company to hold.

Ithaca Energy (IAE) - Despite a 30% increase in proven reserves in the North Sea, Ithaca had a disappointing week finishing down 8% on the week at 146p. I continue to hold as fundamentals seem strong with top notch management.

Barclays (BARC) - A fall at around the £2.76 mark on European debt worries was an opportunity to buy in and sell out on a rise back to £2.90.

Falkland Oil and gas (FOGL) and Rockhopper (RKH) - Positions in these Falkland Island stocks restarted with news from the FOGL Toroa drill prospect due to early July and with Rockhopper completing a heavily oversubscribed funding raising at £2.80 seemingly giving a floor to the price and with plenty of news to come. After a fall to £2.70 on Friday morning, RKH bounced back to £2.90 presumably facilitated by market makers trying to fill orders for instituions who wanted more stock than was on offer in the placing.

German court decision and euro strength helps markets

Last night the the Dow Jones Industrial Average finished at 10,173, up 273 points or 2.7% after a German court blocked attempts to stop contributions to the euro zone default prevention fund. The S&P 500 Index climbed 31 points, or 3%, to 1,086. A strengthening euro above $1.21 also helped sentiment.

The FTSE 100 is currently up 48 points to 5,179. But the good news was tempered this morning when figures from the Office of National Statistics show a 0.4% fall in manufacturing production in April. There were expectations of a 0.5% rise after a 2.2% increase in March. Producer prices rose by 0.3% in May, against expectations of a 0.5% rise demonstrating that manufacturers are starting to struggle to push through price increases to buyers.

BP (BP.) is currently up 7% or 28p or 393p as sentiment turned more positive about the medium term impact on dividend payments after the steep falls earlier in the week. Unfortunately the portfolio was unable to benefit as the positon was sold yesterday at a profit but a frustrating not to take part in today's rise after the falls to around 340p yesterday morning.

Wall Street reverses and finishes below 10,000

Stock markets are again under pressure this morning as the U.S. markets reversed strong gains last night to finish down. The Dow Jones Industrials closed at 9,899 down 41 points after being up more than 100 points earlier in the session. The only reasons for the switch in sentiment seem to have been a weakening euro (back below the $1.20 level) and a huge sell off in BP shares on dividend cut or even bankruptcy fears which sent it to a 14 year low.  BP was forced to issue a statement this morning that it was financially strong, had good cash flows and had a borrowing level below target. It opened down over 30p to £3.38 but has since recovered to £3.68. A buy for the portfolio was made on the weakness which now seems overdone since its seems unlikely the firm would ever go bust despite the Gulf of Mexico liabilities.

The FTSE 100 is currently down 31 points to 5,057 after moving below 5,000 in early trades.

Ithaca Energy ups reserves estimates

North sea oil explorer, Ithaca Energy (IAE) today reported a rise in total reserves following the successful appraisal of its Stella well which will come into production in 2012. At April 30, the company's total proved reserves stood at 20.9 million barrels of oil equivalent (mmboe), up 30.6 percent from Dec. 31, while total proved and probable reserves grew 12.8 percent to 41.96 mmboe. Proved reserves associated with the Stella field more than doubled to 10.2 mmboe, while proved plus probable reserves rose 61 percent to 14.4 mmboe.

After falling from close to £2 over the last month or so to hit 145p yesterday, the shares rose 7p or 5% to 152p today. Given the progress the company has made over the last 2 years with production now averaging 5100 bpd from the existing Jacky and Beatrice fields, the increase in reserves gives further impetus for strength in the price over coming months. This is a well managed, debt free and well financed company which with the right acquisitions could become a signficant North sea producer over the next 3 years.

BP slides again and triggers sale

Further falls in BP (BP.) were triggered today on fears that political pressure from the Obama administration would mean that dividend payments would be suspended or cut due to the impact of the Gulf of Mexico oil spill. The shares fell as low as 380p today, triggering a stop loss on a buy yesterday. This stock is certainly struggling to find a bottom having fallen from £6.50 since April and buyers seem in short supply as income funds divest their holdings. Contrarian Investor's attempt at bottom fishing on this one proved unsuccessful with a tight stop loss of 5% in place. However it seems conceivable that any further progress on plugging the Gulf of Mexico leak and further news on the dividend in July will finally put a floor on BP's valuation.

Markets back in positive territory on Bernanke comments

The FTSE 100 moved back up 57 points to close at 5,086 and the Dow Jones industrials are currently up 118 to move past the 10,000 barrier to 10,058. Commodity stocks were helped by reports from China that exports were 50% higher in May than a year ago. Comments by U.S. Federal reserve chairman Ben Bernanke also helped sentiment when he said last night that and today that any residual impact of Europe's debt trouble on U.S. economic growth would likely be modest so long as financial markets continue to heal and he pressed politucians to address the scale of their budget deficits both in the U.S. and globally. After the falls of the past few days, traders were saying that economically sensitive sectors like industrials, infrastructure and technology were over sold.

GW Pharma moves down as Sativex UK approval awaited

GW Pharma (GWP) has continued its downward move since hitting the 130p mark at the interim results in April. Lack of buying pressure means that it looks like the price is being walked down by a few pence a day to its current 114p by the market makers and further weakness may be evident before final approval and launch of Sativex in the U.K.. The company expects these milestones to be hit by the end of June. After several sales of GWP around the interims and then around a week ago in the £1.20-1.30 range, I continue to hold but with a reduced number on this downward drift. Any large fall back to the £1.00 level will be a buying opportunity and chance to top up. As we saw following the regulatory announcement in March, GW can be volatile and easily trade in a 30p range on no news.

Some buying opportunities on weakness

The FTSE 100 continued to fall today and is currently down 55 to 5,011 after falling below the 5,000 mark earlier in the day. A move back to the 5,000 level has meant that I have been making some selective buys on weakness on stocks I have been watching for the last few weeks as they hit my target price. Although further falls in the market are possible, quite a few names are back into the "good value" range. Timing the absolute bottom is never easy, so its a question of picking away rather than going all in.

BP (BP.) is down 19p or 4.4% to £4.11 following US president Barack Obama's comments that he'd sack the British company’s chief executive Tony Hayward. During an interview due to be aired tonight he said "He wouldn't be working for me after any of those statements," referring to Haywards comments like "it's a big ocean". A second piece of bad news came for BP when Russia’s state-run gas giant Gazprom said it had no need for the British oil company’s Kovykta gas field in Siberia which at one point in 2007 was said to be worth nearly $1 billion. Although I am a little nervous about BP, I today bought a position at £4.13 with a 5% guaranteed stop loss given the speculative nature of this share.

Rockhopper (RKH) announced that it had raised £48.5 million for the further development of its North Falkland basin field with the issue of 17,320,000 new ordinary shares at 280 pence each. I took the opportunity on this news to re-establish a holding in the company at £2.86 following yesterday's 8% fall as rumours of the placing circulated. I have also bought a small holding in Falkland Oil and Gas (FOGL) for potential gains on a discovery on the Toroa prospect which is currently being drilled to a depth of 2700 metres and was spudded on June 1st.  Target depth is expected 35 days from June 1st.

The fall in ITV (ITV) back to 52p also was taken to buy back a holding in the company which has drifted from the low 70p range in the last month or so and should benefit from an increase in advertising during the World Cup.

BP taking the flak for Deepwater horizon disaster but what about others?

Since the Deepwater horizon disaster in the Gulf of Mexico BP's (BP.) share price has fallen from around £6.50 to today's £4.38, a drop of 33% wiping £40 billion of its market capitalisation. Although little is being said in the media of the other company's involved in the rig disaster, they too have seen their share prices hit hard. President Obama and the U.S. oil industry seem to be keen to maximise BP bashing whilst forgetting that U.S. companies like Anadarko have major interests in the well.

Anadarko Petroleum(APC) owns 25% of the well, Transocean Ltd. (RIG) operated the rig, Halliburton (HAL) provided the drilling equipment and Cameron International Corp. (CAM) provided the failed blow out preventer. Transocean has fallen from the high $80's to $50 since the disaster and Halliburton has fallen from $35 to $23.

Deepwater drillers not involved in the Deepwater horizon have also fallen heavily as the Obama administration announced a 6 month moratorium on new deepwater drilling. For example, one quality stock which stands out is Noble Corp (NE), falling from $43 to $27 and now trading on a forward price/earnings of around 5. At this price level it looks a tempting entry point as the block on drilling will be unlikely to be retained for any length of time given the pressure to find new sources of oil.

For the Contrarian Investor UK portfolio some of the oil names such as Conoco Phillips (COP) at $50 and Chevron at $71 looks tempting. The sector has taken a tremendous hit on the negativity surrounding the Gulf of Mexico issues and the effect of the oil price moving back into the low 70's. The oil price has moved down as speculators started to bet against the commodity when it moved into the 80's and the strengthening U.S. dollar also reduced it's value. I am looking at an entry point in some of these stocks if markets look weak again during the early part of this week.

Continued economic worries move down stocks

The after effects of last Friday's disappointing U.S.jobs numbers and fears about the health of Hungary and other European economies are moving stocks down this morning. The FTSE 100 is currently down 73 points to 5,051 and Dow futures are down a further 40 points to 9,897. Commodity stocks are baring the brunt of the pain with metal prices falling heavily - Kazakhmys (KAZ) is down 3.5% at £10.80 and Aquarius Platinum (AQP) is down 5% to £3.41.

BP (BP.) moved against the trend with a 5p rise to £4.38 as they reported some success in stemming the flow of oil from the damaged well in the Gulf of Mexico.

Tidjane Thiam looks like escaping the chop at Pru

After the Prudential (PRU) pulled out of its audacious bid for U.S. insurer AIG's Asian business AIA on Wednesday, it looks like Chief Executive Tidjane Thiam will be let off the hook for losing shareholders £450 million in investment banking fees and break clauses (which amount to £150 million).

With large institutional shareholders refused to play ball and said they would vote against the deal to pay $35.5 billion for the AIA assets (a 75% yes shareholder vote was needed), Thiam's team went back to AIG, which is 80% owned by the U.S. Treasury, to ask for a 10-15% reduction in the price. Unfortunately, the AIG board voted down this idea and the Prudential was forced to concede that the deal was no more last week. This was a somewhat surprising result, given the alternative option for AIG is an Asian flotation of AIA with all its uncertainties. However, there were fears that even with a price cut to $30 billion or so, the deal might still have been rejected by shareholders, leaving AIG with red faces all round.

Although the deal to buy AIA's assets looked great on paper in that it would make the Prudential by far the largest insurer the fast growing Asian region with the potential for significant cost cutting through integration synergies, institutions were concerned about the premium that the Pru were paying. The big mistake that Thiam made was to underestimate shareholder resistance and convince key shareholders even before the initial negotiations were finished. The Pru wrongly assumed that with a bit of persuasion after the event, institutions could be brought to the table to stump up the huge capital needed for the rights issue.

So the Pru management has been left with egg on its face and owners of the shares seriously out of pocket. At £450 million, it equates to 18p for every share. Shareholders must be hoping that Thiam drives value in a big way over the next couple of years given his £5 million pay package.

Portfolio review of the week June 5th 2010

After a week of significant volatility, markets fell heavily yesterday, with the Dow Jones Industrial Average falling on disappointing jobs news from the U.S. and fears of a spread in the European debt crisis due to Hungary. The Dow fell 323 points, or 3.2%, to 9,931 and finished the week below the key 10,000 mark and 2% lower for the week. The Nasdaq Composite dropped 84 points or 3.6% on Friday to finish at 2,219 and down 1.7% for the week. The S&P 500 dropped 3.44% or 38 points to 1,065 with a fall of 2.3% for the week. The FTSE 100 fell 85 points or 1.6% to 5,126 on Friday and finished down 1.2% for the week. However, FTSE futures are pointing to another 50 point drop on Monday since the worst of the Wall Street falls were not seen until after the close of the European markets.

Industrial and infrastructure stocks (e.g. Caterpillar CAT down 5.5% at $57.7) were hit particularly hard as a weakening euro means that revenues will be hit as the sales are translated back to dollars on currency conversion, plus any weakening of the European economies will hold back sales volumes. In addition, a weakening of commodity prices such as oil (which dropped over 4% to $71) and banking fears hit financials, energy and commodity stocks - Conoco Philipps (COP) was down 3.7% to $50, Barclays (BARC) was down 4.7% to £2.88, BHP Billioton (BHP) dropped 3.7% to £17.71.

The key reason for the decline was that U.S. non farm payrolls rose by only 431,000 last month, short of expectations for a rise of 515,000 jobs. Most of the rise was due to temporary census staff hiring (which created 411,000 jobs) and only 41,000 private sector jobs were created (against 218,000 in April). There were also downward revisions to payrolls in March and April, both 22,000 lower at 208,000 and 290,000 respectively. The unemployment rate dropped to 9.7% in May from 9.9% the previous month, in line with expectations.

On top of this the euro got a battering with a fall below the $1.20 level against the dollar being the lowest point for four years as fears that Hungary may suffer a Greek style debt crisis emerged. Hungary is in the European union but not part of the euro. However, after the concerns about Spain last week, worries about Hungary have given investors plenty of reasons to be pessimistic about the state of European finances and the health of its banks. A spokesman for Viktor Orban, the Hungarian Prime Minister, suggested that his country had only a slim chance of avoiding a Greek-style debt crisis. Peter Szijjarto, the Prime Minister’s spokesman, said that his Government was “ready to avoid the path that Greece took ... After realising what reality is, we will not hesitate to act.” The potential exposure to any Hungarian default by European markets is a stark reminder that the write-down's of the banks may not be over.

The Contrarian Investor UK portfolio has had limited trading over the last 2 weeks due to holiday. But positions were initiated in Coal of Africa (CZA) at 104p and BP at £4.19. The Coal of Africa position is retained but BP was sold on Thursday at £4.50. Short term trades were all put in play on Barclays (BARC), Man Group (MAN) and Prudential (PRU) which were all closed within a day or two as the market rebounded from the market falls late in May. The falls of last week have put some interesting opportunities on the table and I will take these on any further weakness during the early part of next week especially if the FTSE moves below 5000 again. Any fall in the U.S. S&P 500 below the key technical 1,050 level will be watched with interest.

It was disappointing not to be involved in the huge spike in the Falkland Islands oil shares yesterday after Rockhopper (RKH) issued a very positive technical update on its Sealion oil find in the North Falklands basin. RKH finished up 33% at £3.19, Desire Petroleum (DES) was up 22% at £1.00 and Falklands Oil and Gas (FOGL) was 10.5% at £2.06. Rockhopper upgraded the size of the find to 242 million barrels recoverable with further increases likely. After seeing the price drop to below a £1.00 on Wednesday on false rumours of a poor quality oil discovery (and possibly some sort of manipulation), buyers at this point have seen a 300% plus increase. After having my finger on the trigger to buy at these levels I am frustrated that I didn't proceed. Nice profit missed. It is incredible to think that Rockhopper was trading in the 35p range as little as a few weeks ago before the results of the Sealion appraisal well. So continued holders are nearly at the "ten bagger"stage. You don't see too many of these trading opportunities and I am sure that many have profited nicely. I am also sure that many lost a lot of money during the "flash crash" of Wednesday. It has been positive to see some good profits in these Falkland Islands shares, but what could have been if I'd had the nerve!?

Markets looking strong today after rise in U.S. last night

On Wednesday, the Dow Jones Industrial Average gained 225 points or 2.3% to close at 10,250 with all 30 components closer higher. The Nasdaq Composite Index rose 2.6% or 60 points to finish at 2,281 and the S&P 500 rose 28 points to 1,098. The rise was driven by an industry report that pending home sales were up 6% in April. However commentators have noted that this is probably as a result of buying activity ahead of the expiry of a tax credit.

The FTSE 100 is currently up 85 points to 5,237 with miners in particular helping the index. For example Rio Tinto is up 3.5% to £32.47. BP (BP.) bounced this morning following news that progress to cut off the flow of oil had progressed after a jammed cutting saw had been dislodged at the well head. After being as high as 4.5% up at 450p, it is now 15p higher at 444p. Dow futures are up 26 points.

Rockhopper suffers its own "flash crash"

Contrarian Investor UK blog is back in action after a 2 week break and what a period its been with the markets falling heavily and the U.K. blue chip bell weather BP (BP.) falling close to £4. Then there was Prudential (PRU) backing away from its Asian AIG acquisition following institutional share holder pressure. As they say, a week is a long time in politics but a lifetime in investing!

On May 6th 2010, the U.S. Dow Jones Industrials suffered what is now termed a “Flash crash”. Within a 5 minute period starting at 2.47pm, the index fell 990 points or 9%, then, in around 90 seconds, the index regained 543 points. At the close, the DOW recovered to be down 347.8 points or 3.2%.

The cause of the "flash crash" is still not certain, but various theories have been explored by the U.S. SEC (Securities and Exchange commission). First there was the the "fat finger theory". Although now discounted, there were rumours that a trader mistyped a sell order, mistakenly selling billions of dollars of shares rather than millions. Then attention was focused on automated computer trading systems of the DOW index which may have caused an avalanche of sell orders, particularly platforms which used high speed trading (buying and selling stocks within seconds). Again this seems to have been a contributor to the fall but not the only cause. But the most likely explanation was a sudden loss of liquidity in the market with a huge amount of sellers overwhelming a very limited number of buyers exacerbated by stocks automatically selling on automated stop loss orders. The loss of buying strength was caused by false rumours in the market that the euro was on the verge of collapse and a major bank had gone down in the style of Lehman.

Today Rockhopper Exploration(RKH) inexplicably suffered its own "flash crash". After trading at around the £2.70 mark for much of the day it suddenly began to fall at around 12 noon, falling through the £1.00 barrier and moving into the 60's at its low. The company was forced to issue a news release at 13.52 stating "notes the significant share price movement today. Rockhopper is not aware of any reason for this movement but makes the following update...". Like the DOW flash crash the reasons do not seem to be clear. Some have speculated that this was a market maker induced "tree shake" to flush out sellers and fill orders for large institutions. However, the scale and speed of the falls not only in Rockhopper but also in Desire Petroleum (DES) and Falkland Oil and Gas (FOGL) makes this appear unlikely. It is possible that a "fat finger trade" occurred of sufficient size or more likely a relatively large institutional sell order (a 125,000 sell occurred around 12) which may have destabilised the market in the shares and triggered a cascade of sell orders as automatic stop losses were triggered electronically. As many private investors hold the stock it is plausible they were using automatic stop loss orders which added to the selling panic. Like the DOW "flash crash" a sudden loss of liquidity moved the stock to unbelievably low levels before buyers returned and moved it back to a more normal trading pattern. False rumours of problems relating to the quality of the oil find also seem to have been circulating in the City which added to the downward pressure.

So what are the lessons for private investors of the Rockhopper debacle. First be very careful with stop losses on risky small cap shares since a market maker "tree shake" or sudden rise in selling pressure can move the share price through your stop loss and then before you know it the price has rebounded and you are out of pocket. If you prefer to use stops, them make them wide and normally you won't be caught out (but today's unprecedented Rockhopper fall would still have been difficult to predict in terms of setting a realistic stop loss level). Don't assume a large move in the share price of a small cap is connected with a real news event. False rumours can crush the price temporarily before the false stories are countered.

I was looking to buy into Rockhopper today with the volatility in the 80p-100p range but the sudden moves were frightening even for me without knowing what was going on. Given the news flow to date it seemed unlikely that the reported oil reservoir had come to nothing. But my concern was for an accident BP style on the Ocean Guardian rig in the Falklands so I held off buying. If I'd had the nerve it would have been a very profitable trade indeed. Something seems to have gone very wrong today in the trading of Rockhopper shares and it is probably the small investor that has taken the brunt of the pain.

Limited posts on Contrarian Investor UK blog

As I'm holiday for a couple of weeks, postings on Contrarian Investor UK might be few and far between for the next couple of weeks due to limited internet access. Sorry readers!

p.s. nice to see Rockhopper (RKH) bounce back over £2.20. Profits taken. At £1.70 it was a steal! Half my GW pharma (GWP) position was sold at £1.29 following the interims, the rest will be retained for the Sativex approval news in June.

Rockhopper sells off hard as market uncertainty hits small caps

Rockhopper exploration (RKH) dropped 18% today to 173p despite news from the company that it will know in 10-15 days how big its discovery on the Sea Lion prospect will be after initial results indicated a substantial reserve. The well itself is being suspended for future testing. The company is now valued at only £300 million, £70 million more than fellow Falkland Islands oil explorer Desire Petroleum (DES) which seems unwarranted given RKH has struck oil and DES has to date not.

The market panic created by German Chancellor Merkel's comments about the euro is exactly the sort of negativity that Contrarian Investor UK likes and several good opportunities have been thrown up in the panic. After buying some Rockhopper today on the sell off, I will be looking to add to the position on any further weakness given the expected news in just over a week. Given the news released to date from sea lion and the heavy institutional buying since the oil discovery (for example by relatively conservative Ignis which owns 2.7 million shares and 4 million contracts for difference) Rockhopper seems very good value at these levels, particularly in comparison with the other Falkland Island drillers. The greatest profits are to be made when others are hitting the sell button!

It's GW Pharma (GWP) interims time tomorrow, which I await with great expectation. The shares finished up 1p today at 130p.

German short selling of bonds ban worries market - send dollar to four year high against euro

The FTSE 100 is currently down 128 points to 5,177 after a fall of 115 points to 10,511 last night on the DOW industrials as traders reacted negatively to the news that German authorities are banning naked shorting of certain financial instruments in the debt market.

The euro fell sharply to hit a four year low against the U.S. dollar of 1.21 versus a 52 week high of 1.51. The rise in the dollar sent commodity stocks sharply lower this morning with BHP down 5% to £18.35 and financials are also under pressure with the likes of Barclays down over 6% to £2.86. BP continued its slide down to hit £5.26, a fall of 1.5%. After announcing its rights issue on Monday to acquire the assets of AIG's Asian unit AIA, Prudential shares are down over 4% this morning to £5.09 as analysts still remain unconvinced about the deal.

The heavy fall in Ithaca Energy (IAE) to £1.53 on no news (down 15p, 9% today) has made it a buying opportunity and this has been added to the portfolio this morning. The volatility is Ithaca is amplified by its dual listing on the Toronto Stock Exchange (TSX) and the London Stock Exchange (LSE) which means that currency and trading in Canada have an impact on the U.K.price. WTI crude oil went below $70 yesterday (the lowest point this year). 

Portfolio review of the week May 16th 2010

The Dow Jones Industrial Average was down up to 200 points on Friday but finished the day down 162 or 1.5% at 10,620. Despite Friday's weakness, on the week, the Dow Industrials rose 2.3% , the S&P 500 rose 2.2% to finish at 1,136 and the Nasdaq composite rose 3.6% to 2,347. The FTSE 100 rose 2.7% on the week, despite Friday's fall of 170 points to close at 5,263.

After the announcement of the 720 billion euro ($1 trillion) European Union/IMF bail out at the beginning of the week and a large relief rally after heavy falls at the end of the week before, the markets remained increasingly under pressure as the days passed.  Real concerns began to surface that the eurozone may not be able to get its debt under control within slowing economic activity to a snail's pace.

The Contrarian Investor UK portfolio took the opportunity to sell positions initiated during the market weakness the week before when the eurozone bail out euphoria hit on Monday. So Coal of Africa (CZA) and Ithaca Energy (IAE) were both sold at a profit. I am now again sitting largely on the sidelines with the majority of my equity holding in GW Pharma.

GW Pharma (GWP) - Despite the volatile week on the markets, GWP's share price continued to make good progress. The shares rose over 10p or 8.7% on the week to finish at 127p as the company is due to make its interim results announcement on Thursday and an update on the regulatory approval status of multiple sclerosis drug, Sativex, is eagerly awaited. I continue to hold this a core position since it is likely that Sativex will be launched by partner Bayer Schering in June barring any regulatory set backs but this seems unlikely given the update given by the company in March.

Resurgence of worries about eurozone spark Friday sell off

Stock markets fell heavily around the world and the euro fell to a 19 month low against the dollar on concerns that austerity measures may curtail growth and that the bail out may be too small to prevent further problems in the PIIGS economies (Portugal, Italy, Ireland, Greece and Spain). In addition, there are worries that cuts in public spending and increases in tax will lead to civil unrest as we have already seen in Athens which may make them difficult to implement, keeping debt levels too high.

The DOW industrials are currently down 170 points or 1.6%, the FTSE 100 fell 171 points to 5,263 (a 3% drop) and the Spanish stock market fell over 7% today.

Fears are growing that one of the engines of recovery, consumer spending, will reduce as consumers are faced with higher taxes as European governments struggle with large structural public spending deficits and a rising debt to GDP ratio. Portugal increased income tax between 1% and 1.5% and VAT will be increased by 1% to 21%. On Wednesday, Spain announce major cuts in public spending and civil service pay will be cut by 5% this year and frozen in 2011 as well as pensions being frozen. The Spanish government is planning to reduce the deficit to 9.3% of GDP this year and to 6.5% in 2011, down from 11.2% in 2009.

The new UK Conserative/Liberal Democrat government is expected to announce an emergency budget in June with rumours already circulating of an increase in VAT from the current 17.5% or a widening of its scope to items such as children's clothes or food.

GW Pharma has positive momentum as interim results beckon

Last night, GW pharma (GWP),  confirmed its interim results would be next Thursday (May 20th). It is likely that expectation of updates on the regulatory approval status of Sativex in the Europe has begun to move the stock and it is currently up around 5% to 126p to buy. In addition it is hoped that further news about the U.S. FDA application for cancer pain will be available. At 126p the stock is still below the level it reached in March when the last regulatory update was given and I am hoping that we will see a level much higher than this once Sativex has passed all the hurdles for the registration in Europe. The company were confident that the drug would be approved by end of Q2 i.e. June at the last major announcement.

Appetite for Eurozone bail out fades

Markets across Europe and Dow Futures are all down today after yesterday's euphoria about the IMF/EU $1 trillion bail out faded.  Concerns are being voiced that the deal will help countries like Greece and Portugal but deal only with symptoms not the cause of the problem. For example, systemic under payment of taxes is an ongoing problem in Greece which has only been marginally addressed. There still may be trouble ahead to ratify the deal since French and German voters are reluctant to help these weaker economies when they are seen to have caused their own problems with social security systems they can ill afford. The question is whether throwing hundred's of millions of euro's at these weak economies will ultimately postpone the inevitable defaults on their unsustainable debt.

Eurozone bail out moves FTSE 100 up over 4%

The FTSE 100 is currently up 223 points or 4% to 5,345 and Dow industrials futures are up 335 points to 10, 719 as investors breathed a sigh of relief on news of the eurozone financial stability package. This is despite all the political uncertainty in the U.K. relating to the Hung parliament. 

The IMF and EU agreed to put together a €720bn (£625 billion) stability fund and the ECB (European Central Bank) announced it planned to buy government and other bonds on the open market. The ECB move was a complete reversal of policy from that stated from its President Jean-Claude Trichet last week.The bank will also reintroduce unlimited offers of three- and six-month liquidity to ease the current liquidity situation.

The eurozone will provide loan guarantees up to €440bn and a further €60bn will support weaker member states such as Portugal and Spain. The IMF will provide up to a further €220bn.

Commodity stocks are moving up significantly this morning. Portfolio holding Coal of Africa (CZA) is up 9% to 133p whilst BHP Billiton (BHP) is 5.8% to £19.73 and Kazakhmys is 9.2% at £13.09. Financials also strengthened with Barclays (BARC) up 34p or 12% to 318p and Royal Bank of Scotland (RBS) up 8% to 49.4p. BP (BP.) is one of the few stocks down, currently down 7p at £5.46 as concerns about the Gulf of Mexico spill still weigh.

Rockhopper Exploration (RKH) shot ahead a further 54p at one stage on further news about its oil find in the Falklands Islands and the share price is now trading at 28% or 41p at 187p. This means RKH is up over 500% since a low of 36p last Wednesday. I'm just a tad disappointed selling out at 125p! For those brave enough to have turned off their trading screens since last week they will have been mightily rewarded - high risk, very high return.

After waiting several weeks for a correction, my decision to start buying last week has been confirmed as correct. With this huge move up today, I wish I had been more aggressive with my buying of stocks especially in the commodity space.

Portfolio review of the week May 8th 2010

The Dow Jones Industrial Average fell 140 points, 1.3%, to close the week at 10,380, despite the Labour Department report showing job growth in April at its fastest pace in four years in the U.S.. The index was was off 5.7% for the week, its worst performance since March 2009, losing 772 points in 4 days. The Nasdaq Composite Index was down 54 points or 2.3% to 2,266. The S&P 500 fell 17 to finish at 1,111 and showing a fall on the week of 6.4%. The FTSE 100 fell 138 points or 2.8% on Friday to close at 5,123. Over the week the FTSE 100 declined 7.8% or 430 points. Over the past month the index is down 11% or 639 points.

What has gone wrong? Investors continue to worry about Europe's debt crisis, particularly Spain and Portugal's situation after the Greek bail out. The Australian resources super tax didn't help as it hit commodity stocks and signs of a slow down in China made Asian investors nervous. Then albeit a sideline issue, the hung parliament situation in the U.K. has not helped sentiment in this country. My worries about the safety of the market when the DOW had moved over 11,000 and the FTSE 100 was trading in the 5,800+ range have been borne out. When stock markets move up week after week (the DOW gained 8 weeks in a row) a correction is inevitable, though the size and speed of the move down has surprised me.

Despite the heavy falls on both side of the Atlantic, the portfolio has done well this week but only because Falkland Island oil explorer, Rockhopper Exploration (RKH) came good. In fact its performance was exceptional. The other holdings have suffered in the sell off, but GW Pharma (GWP) has held on well considering what the indices have done. However, Contract for difference (CFD) bets on the FTSE 100 and DOW industrials were unsuccessful and fell through stop losses and unfortunately ate into the RKH gains.

Rockhopper Exploration (RKH) - After dropping into the mid 30p zone on Wednesday, the announcement on Thursday that the company had found a substantial oil reservoir on its Sea Lion prospect in the North Falklands Islands basin moved the share price to around 92p by close of play. Then the company issued a further update on the quality of the oil in the reservoir on Friday which confirmed the potential quality of the find. The shares shot up a further 51.5p to 145p. It was a week of trading in and out of RKH on Thursday and Friday with some nice profits made. I sold my final tranche at 125p on Friday. No doubt the shares have further to go as news flow on the analysis of the find continues to flow but I will take my profits for now. A drop yesterday to 84p was certainly a classic market maker shake to scare investors into selling and clearly several did. By the afternoon the shares were up 74%.

Not only it is good news for RKH shareholders but clearly good news for UK PLC. There is a talk now of an oil field as large as the North Sea.

GW pharma (GWP) - A good week for GWP as the shares held steady at 116p despite the broader market falls. Awaiting Sativex news which should be due any day now.

Ithaca Energy (IAE) - Despite some good news from the Stella North Sea field in relation to the sidetrack well the shares dropped 25p or 13% this week to finish at 168p. On Friday IAE fell 5% as oil fell to $78 per barrel.

Coal of Africa (CZA) - Coal of Africa shares fell nearly 17% this week to finish at 121p as the global price of coal fell and investors worried about the Australian resources super tax. On Friday CZA confirmed the new Australian tax would have no impact on earnings since they have no sites in Australia. The position initiated at 130p is under water but the prospects look very positive for the medium term especially with the London main market listing due Q2.

Coal of Africa confirms Australian super tax has no effect

Coal of Africa (CZA) issued an RNS this morning confirming that the underlying intention of the Australian resources super tax is the levying of tax on profits arising from the exploitation of non-renewable resources located in Australia. Since the company has no operational projects in Australia, it expects no increased taxation charges resulting from the implementation of the tax. The shares are down 3.5% this morning to 122p. The falls of the last week or so seem overdone given this confirmation and with the Mooiplaats project ramping up production and Vele coming on stream CZA looks a great play for significant earnings growth in 2011.

DOW falls close to 1000 points within minutes then bounces

It was an incredible thing to watch last night as the U.S. market plummeted on seemingly nothing more than more negative reaction to the situation in Greece. Within minutes the Dow Jones Industrials had moved from around 250 points down, to being 992 down to hit 9,867 (-9%). FTSE 100 futures went several hundred points lower at the time. The index recovered relatively quickly and finished at 10,520 a decline of 3%. It was the larggest point drop since Feb. 10, 2009 and largest percentage decline since April 20, 2009, according to Dow Jones Indexes. The Nasdaq Composite dropped 82 points, or 3.4%, to 2,319.

The massive fall has been blamed on automated selling and a potential glitch trade. Shares of Procter & Gamble, one of the Dow components, dropped as much as 37% to under $40, but recovered to close down 2.3% at $60.75. Consultancy firm Accenture, fell to a penny before bouncing back to close at $41.09. 

Rockhopper soars on Falkland Island oil discovery

North Falklands basin oil explorer Rockhopper Exploration (RKH) is currently up 143% to 91p on news that oil has been discovered at the Sea lion prospect. Great news for the Contrarian Investor portfolio given the average purchase price of 42p.  I have taken profits on a large slug of the holding and await further news from the testing programme. It was a case of "nerves of steel" yesterday as Rockhopper's price dropped to around 36p on the general market fall and presumably market makers filling their boots at these low levels in anticipation of an announcement. News clearly leaked this morning before the official RNS as the price had already climbed over 10% by mid morning.

The RNS released at noon today said "Rockhopper Exploration, the North Falkland Basin oil and gas exploration company, is pleased to announce that well 14/10-2on the Sea Lion prospect has reached a depth of 2,744 metres. Initial data collected indicate that this well is an oil discovery, which would be the first in the North Falkland Basin. The Company has run a suite of wireline logs and logging data collected thus far indicate that the well has encountered a 150 metre gross interval of sand and shales. The data show that the well has 53 metres of net pay distributed in multiple pay zones, the thickest of which has a net pay of 25 metres. These pay zones have an average porosity of 19%. Rockhopper now intends to collect additional logging information prior to making a decision whether to plug and abandon the well, or to suspend the well for future testing. The Company is also considering whether to drill an appraisal well on Sea Lion later during the current drilling campaign. Further information will be distributed in due course. It remains the intention of the Company to drill the Ernest prospect in the fourth slot of the overall Falklands Drilling programme.Samuel Moody, Managing Director, commented: "We are extremely excited by the results of this well. While we are presently acquiring additional data, current indications are that we have made the first oil discovery in the North Falkland Basin. We will now focus on analysing inmore detail the data gathered from the well, in addition to continuing preparations for thedrilling of our Ernest prospectlater in the year."

Market stabilises after sell-off

After further falls this morning, the FTSE 100 is currently up 24 points at 5,361 after being down as much as 80 points and DOW futures are up 22 at 10,893. Unfortunately long positions in the FTSE and DOW were stopped out with the falls this morning and yesterday, illustrating the volatility of these markets and the difficulty in playing these short term movements.

Coal of Africa (CZA) has finally moved into positive territory after falling from around 150p to below 120p in less than a week on the general commodity sell off.  My expectation was that CZA would not fall below 120p given the imminent main market listing.  The shares are currently flat at 124p.

It has been reassuring that GW pharma (GWP) has not moved down despite the large market sell off and it is currently up 1.5p to 120p. I am waiting with baited breath for news of Sativex national approval in the UK and Spain.

Ithaca Energy recovers after successful sidetrack well results

After falling as low as 165p today as the UK and Canadian markets fell heavily on concerns about the fall out from the Greece crisis, Ithaca Energy (IAE) recovered to finish flat at 176p on good news from the North Sea Stella field. 

The RNS delivered at 4.30 stated "The sidetrack well (30/6a-8Z) in the Stella field has confirmed a fully hydrocarbon-saturated reservoir interval in the Andrew sandstone. Successful sampling and pressure tests have also provided essential fluid composition information to appropriately size and plan the development of the Stella field. Well 30/6a-8Z was drilled as a geological sidetrack to further appraise the Stella field, in particular to determine the nature of the hydrocarbons at an intermediate depth in the reservoir up-structure from the initial vertical well (30/6a-8). Data acquired during the operation now permit accurate interpolations to be undertaken that define the compositional changes from gas and condensate to oil with increasing depth. No further drill stem testing was required that would enhance existing data already provided by appraisal wells drilled on the crest of the structure. All objectives have been fully met by the drilling programme and the Company can now integrate this latest information into engineering studies and define the most appropriate development strategy. The well intersected an 18 foot (true vertical thickness) section of Paleocene Andrew sandstone reservoir, a similar thickness to that seen in other wells on and near the Stella structure. A full suite of wireline logs have been acquired and indicate porosities up to 27% providing further confirmation of the lateral extent and quality of the reservoir interval. A full set of pressure data has been acquired to allow the Company to commence detailed analysis to determine the depth of the gas/oil contact in the Andrew reservoir, above the light oil encountered in the vertical well (30/6a-8). Data was also gathered over the Ekofisk chalk interval penetrated by the well. Ithaca has commissioned Sproule Associates Limited to provide an updated reserves report that will reflect the results of this drilling programme. The report is expected before the end of Q2 2010, at which time a further announcement will be made. The Stella appraisal programme is complete and it is predicted that the rig will be demobilized after 89 days on location (compared to a pre-drill estimate of 79 days). The final cost of the programme is anticipated to be within budget."

More stock market falls as euro zone worries persist

The FTSE 100 is currently down 50 points to 5,349 and Dow Industrials futures are down 60 points at 10,872 as continuing worries over the health of the euro zone dominate. Investors are concerned that Greece's problems may extend to Spain and Portugal. A national strike in Greece has also not helped sentiment with riots breaking out and flights grounded out of Athens during the afternoon.

The U.S. April ADP employment report also came in slightly light of expectations which has not helped sentiment.

Prudential (PRU) fell 2% to £5.48 as it announced a delay in a rights issue to fund the buy out of  AIG's Asia unit AIA in a $35.5 billion acquisition as the FSA questioned the capital adequacy of the combined company.

Stocks get hammered on both sides of Atlantic

The FTSE 100 finished down 142 points or 2.5% at 5,411 as investors fretted that Greece’s debt crisis could spread to other euro zone members, particularly Portugal and Spain. The DOW Jones Industrials dropped as much as 270 points this afternoon and is currently down 243 points at 10,907. Tech stocks in the U.S. fared even worse with the Nasdaq composite currently down 77 points or 3% to 2,421 with Google (GOOG) down 4.5% to $506 and Advanced Micro Devices (AMD) down 7% at 8.6%. The falls in the U.S. were despite upbeat quarterly earnings updates from pharmaceutical companies, Merck (MRK) and Pfizer (PFE). Commodity stocks were hit earlier in the day as news of an Australian mining super tax emerged over the weekend.

Markets suffer on further European debt fears and commodity sell off

Today the euro fell to a 12-month low against the dollar on skepticism over the Greek government's ability to carry out harsh austerity measures required by the EU/IMF aid package. The DOW Jones Industrials are currently down 155 points to 10,996, the Nasdaq composite is down 55 points at 2,441 and the FTSE 100 is down 100 points at 5,441. Although the German government negotiated to provide the majority of the European Union contribution to Greece, there are fears that Angela Merkel may not get a crucial vote passed to allow the aid to be used.

In the UK, miners and BP dragged down the FTSE 100 index. BP (BP.) is currently down 4% to £5.52 on fears that the clean up bill and compensation payments may amount to as much as $10 billion, only some of which will be covered by liability insurance policies. BHP Billiton, Xstrata and Rio Tinto were all down on news of the Australian resources super tax. BHP (BHP) is currently down 7% to £18.86, Xstrata (XTA)is down 6% to £10.21 and Rio (RIO) is down 4.8% to £32.14.


The correction has given an opportunity to start a little buying after several weeks of sells. The FTSE 100 has been bought at 5,431 and DOW at 10,988. Coal of Africa (CZA) position initiated at 130p. Ithaca Energy (IAE) position increased at 176p.

Ithaca Energy drop gives opportunity to buy back

After selling half of my Ithaca Energy (IAE) holding on Friday, an 8% drop today, following a similar fall on the Toronto Stock Exchange (TSX) last night gives an opportunity to buy back. The negative impact of the Australian mining super tax on the commodity sector and a "take profits" story on thisismoney.co.uk helped to move the price down. As far as I'm aware none of Ithaca's assets are based in Australia so the "Henry tax" will not impact earnings.

However, some signifcant news on the sidetrack of the Stella field are expected any day. On 15th April, IAE said "The well will now be geologically sidetracked, as intended, to test the reservoir up-flank between this vertical bore and existing crestal wells to further investigate the quality of the reservoir and provide essential compositional information of the hydrocarbons at intermediate depths. The sidetrack will take approximately 15 days to penetrate the reservoir."

Australian miners fall on new plan for mining tax

The Australian government says it will impose a Resource Super Profits Tax — also known as the Henry Tax, after the Treasury Secretary Ken Henry — starting from July 2012 on earnings after exploration, capital and dividend payments. Officials said the tax would help the Australian economy and make the system "fairer and simpler" for Australia's working families and businesses. The tax on all mining projects there from July 2012 to raise A$12 billion in the first couple of years. The revenues will be used to trim 2 per cent from the company tax rate and increase pension contributions.The minister for Resources and Energy, Martin Ferguson, said that a "significant proportion of funds" raised from the tax "will be returned to the resources industry through a new resource exploration rebate and investments in the infrastructure," and that the mining sector will also benefit from a lower company tax rate.

Prime Minister, Kevin Rudd, said “Resource profits were more than A$80 billion higher over the past decade, but the Australian people received only an additional A$9 billion. BHP is 40 per cent foreign-owned, Rio Tinto is more than 70 per cent foreign-owned. That means these massively increased profits ... built on Australian resources are mostly going overseas. It’s time for the Australian people ... to get a fairer share of the natural wealth of this country, which ultimately is owned by all Australians.”

The news sent mining stocks operating in Australia such as BHP Billiton down around 2% on the U.S. and Australian market's after falling more heavily earlier in the day. BHP Billiton's Chief Executive Martin Kloppers said in a statement that the tax would result in an increase in the total effective tax rate on the company's profit earned from its Australian operations, from about 43% currently to around 57% from 2013. Xstrata PLC's Chief Executive ,Mick Davis, said that the the proposed tax reduces "the very cash flows that are reinvested in maintaining or expanding existing Australian mines and in developing new operations, protecting existing jobs and creating new ones."

Portfolio review of the week May 1st 2010

The Dow Jones Industrial Average fell 158 points (1.4%) last night to finish at 11,009, as financials fell heavily following the downgrade of Goldman Sachs (GS) to sell. Goldman fell 15 dollars to finish at $145, a fall of over 9%. The Dow ended the week down 1.8%, the first weekly fall in 9 weeks and the worst week since January. The S&P 500 fell 2.5% to finish at 1,187, and the Nasdaq Composite fell 2% to finish at 2,461. The FTSE 100 closed at 5,553 yesterday, a fall of 65 points on the day and a decline of 170 points or 3% for the week as Barclays (BARC) disappointed due to a benign performance in its retail division.

U.S. GDP in the first quarter came in at 3.2%, meeting analyst expectations. The number was driven by an increase consumer spending  in the first quarter and the core inflation rate fell to its lowest number in 51 years.

The oil spill resulting from BP's well in the Gulf of Mexico appears to be worsening and the news from the White House that new domestic offshore oil drilling will be on hold until the investigation of the spill is complete drove down offshore drilling stocks. The operator of the rig Transocean (RIG) finished down 8% at $72, whilst sector peer Noble Corp (NE) dropped 4% to $39.5. 

This week was a good week for the portfolio despite the fall in the overall market. I continue to watch Coal of Africa (CZA) for an entry point which fell this week to below 150p following its quarterly update.

GW Pharma (GWP) - A broker initiation from Rodman and Renshaw with an outperform rating and 300p target sent the company's share's up 10% on Thursday which was quickly following by a 6% fall on Friday to finish at 118p. Some of the holding was sold on Friday morning and bought back later in the day as the price slipped further. News flow is expected over the next 2-3 weeks, particularly the UK/Spanish national application phase for Sativex and then we have the interim results to look forward to on May 18th.

Ithaca Energy (IAE) - Ithaca finished the week at 193p, around flat for the week. Union Securities has issued a broker report with a $4.00 near term target. The report expects the company to produce 5,100 barrels of oil per day in 2010, field development of Athena, Stella, Carna and Polly in the North Sea is expected to increase production 500% within four years. They also say that the Company trades at a large discount to its proven and probable asset value of $5.38.

RockHopper (RKH) - A poor week for Rockhopper with the stock dropping below 40p during the week before finishing at 42.5p, a 9% drop in the last 7 days. News if expected from the Sea Lion prospect in the next couple of weeks. A small holding in RKH, but volatile.

Rodman and Renshaw put 300p target on GW Pharma

Broker Rodman and Renshaw have initiated coverage of GW Pharma (GWP) with a Market Outperform rating and a 300p 12 month target against the current share price of 122p.

They estimate GW to be profitable in 2012 and estimate the company to earn £0.40/share in 2014. Applying a 20X multiple and a 30% annual discount rate they derive a 12-month target price of £3/share (300p).

This moved the share price up 10% yesterday to close at 127p. Profit takers have moved in today and Contrarian Investor UK took the opportunity to top slice the holding with major news not due for a couple weeks yet and the key date being the interim results on May 18th. The shares are currently down 8.5p or 7% to 121p.

U.S. market waits for GDP data

The U.S. Dow Jones Industrial average moved up 122 points last night to finish at 11,167 as fears about Greek debt contagion eased and earnings continued to meet or exceed expectations particularly in the health sector. Bristol Myers (BMS) moved 4% higher after Q1 earnings rose 16% year on year.

Today the FTSE 100 is down around 20 points to 5,601 after a 5% fall in Barclays (BARC) to £3.42 despite a 47% increase in Q1 earnings. Profit before tax from continuing operations rose to £1.82bn from £1.24bn in the first three months of 2009. Investment banking arm, Barclays Capital, earnt £1.47bn, 62% more than Q1 2009. Impairment charges for bad debts dropped 35% to £1.51bn compared with £2.31bn a year ago and 19% less than the figure for the final quarter of 2009, largely due to a £563m reduction to £191m at BarCap. The shares fell because of disappointment at weaker profits in the retail division, with a 6% drop to £403m.

The U.S. GDP data is due at 1.30 pm GMT with an expectation of a 3.2% seasonally adjusted annual rate in the first three months 2010, down from 5.6% in the fourth quarter. This will dicate the direction of the UK and US markets this afternoon.

Market continues to fall as market worries turn to Portugal

The Dow Jones Industrials finished down nearly 2% at 10,992, a fall of 213 points as Greek Debt worries drove  the sell off. The FTSE 100 is currently down 55 points at 5,547 as the Athens stock exchange bans short selling for 2 months to try and stem share price falls and the the Portugal stock market also fell heavily this morning. Focus has shifted to Portugal following S&P's debt downgrade as the next potential bail out victim.


After weeks of looking way too expensive, there are several stocks that are beginning to move into the value zone.

FTSE drops 150 points on Greece, Portugal worries

The FTSE 100 dropped 150 points or 2.6% today to finish at 5,604 whilst the DOW Jones industrials are currently down 101 at 11,101. The FTSE was hit hard as commodity related stocks took a dive as the "safe haven" U.S. dollar strengthened (e.g. BHP Billiton down 4.2%, Rio Tinto down 5.2%). The reason was debt rating agency S&P's cut to Greece’s credit rating to junk and also cut its rating on Portuguese government debt.

Greece’s rating on the short-term debt is cut to BB+ from BBB+, while the long-term rating has been lowered to B from A-2. Both ratings are below what is considered “investment grade”. The outlook for Greece is also negative. Portuguese government debt was cut by two notches to A- FROM A+, saying the downgrade reflects “the amplified risks Portugal faces” and the outlook on its rating is negative.

FTSE 100 component Reckitt Benckiser also fell over 4% to £34.97 as the company issued a strong performance in Q1 with earnings rising 14% to £461 million but warned of the potential impact of generic Suboxone competition in the U.S. during 2010 (these risks have been highlighted in a previous Contrarian Investor UK story).

FTSE drops 150 points on Greece, Portugal worries

The FTSE 100 dropped 150 points or 2.6% to finish at 5,604 whilst the DOW Jones industrials are currently down 101 at 11,101. The FTSE was hit hard as commodity related stocks took a dive as the "safe haven" U.S. dollar strengthened (e.g. BHP Billiton down 4.2%, Rio Tinto down 5.2%). The reason was debt rating agency S&P's cut to Greece’s credit rating to junk and also cut its rating on Portuguese government debt. 

Greece’s rating on the short-term debt is cut to BB+ from BBB+, while the long-term rating has been lowered to B from A-2. Both ratings are below what is considered “investment grade”. The outlook for Greece is also negative. Portuguese government debt was cut by two notches to A- FROM A+, saying the downgrade reflects “the amplified risks Portugal faces” and the outlook on its rating is negative.

FTSE 100 component Reckitt Benckiser also fell over 4% to £34.97 as the company issued a strong performance in Q1 with earnings rising 14% to £461 million but warned of the potential impact of generic Suboxone competition in the U.S. during 2010 (these risks have been highlighted in a previous Contrarian Investor UK story).

BP shows strong earnings growth on high oil price

BP (BP.) today announced 1st quarter results which exceeded analysts’ expectations. Replacement cost profit, which strips out the effect of changes in the value of inventories and fluctuations in the oil and gas price, was $5.6 billion for the quarter, up from $2.39 billion in the same period a year ago and ahead of expectations of $4.8 billion . Earnings per share were up 134 per cent at 29.82 cents, boosted by oil prices which averaged $71.86 during the quarter, compared with $41.26 during the same period last year.

Stripping out exceptionals, the rise in earnings was 118 per cent, well above analysts’ average expectations of a rise of about 85 per cent. The oil and gas exploration and production business reported a 94 per cent rise in operating profit over the year to $8.3bn, although this was slightly lower than in the final quarter of 2009. In refining and marketing, profits fell 33 per cent compared to the first quarter of 2009 to $729m. However, this still marked a sharp improvement from the $1.9bn loss reported for the fourth quarter of 2009. BP’s net debt dropped to $25.2bn at the end of March, down from $26.2bn at the end of last year. The company said that oil and gas production was unchanged at 4.01 million barrels of oil equivalent per day. TNK-BP, the group’s Russian joint venture, also lifted overall profits. Net income from TNK-BP increased to $543 million, compared with $134 million a year ago. The group kept its dividend frozen at 14 cents per share.

Amazon falls back but valuation still defies sense

At the end of last week, Amazon (AMZN) reported a 68% gain in first-quarter earnings. At one stage during trading on Thursday the company's shares moved over $150 and at their current $143, they still trade at 47 times forward earnings. For the first quarter of 2010, Amazon reported net income of $299 million, or 66 cents a share, compared with net income of $177 million, or 41 cents a share, for the same quarter in 2009 and compared with expectations of 61 cents. Revenue grew 46% to $7.13 billion, ahead of analyst expectations of $6.87 billion. Operating margins were 5.5% compared to 5% for the same period last year.

For the June quarter, Amazon said it expects net sales to come in between $6.1 billion and $6.7 billion. Analysts had been looking for $6.4 billion in sales for the period.

Though Amazon is the undoubted king of e-commerce, it still seems extraordinarily expensive on normal valuation grounds e.g. p/e, book value. Though most analysts remain positive on this stock, any wobble in its sales, earnings trajectory will leave it exposed to a big move down. I love the company, but I don't love this stock price.

Portfolio review of the week April 24th 2010

The U.S. stock market climbed to a 17 month high on Friday after strong new-home sales and good earnings from American Express, marking the Dow's 8th straight week of gains. New home sales posted their largest year-over-year increase in nearly five years. The Dow Jones Industrial average rose 70 points to 11204, its highest close since Sept. 19, 2008. For the week, it climbed 1.7%. The Dow has now had its longest weekly winning streak since a run that ended in January 2004, more than 6 years ago.

The Nasdaq Composite rose 11 to 2530, its highest close since June 2008 led by rises in energy stocks. It rose 2% on the week, like the Dow showing its eighth-straight weekly gain. The S&P 500 climbed 9, to 1,217, its highest close since Sept. 19, 2008.

The FTSE 100 finished up 58, at 5,724 despite the disappointing GDP data as a stabilisation of the Greek debt situation was anticipated. The index was down 0.3% for the week.

GW Pharma (GWP) - No news from GW pharma this week as further information on the Sativex European licence is anticipated in May. It finished flat at 110p. Patience with this one.

Ithaca Energy (IAE) - Ithaca moved up 17p, 10% yesterday to finish the week at 189p on new that it had secured a $140 million funding facility to exploit the Stella North Sea field and acquire other assets in the area. The future looks very bright for this company. The stock moved 17% higher on the week with momentum continuing to look very positive.

Rockhopper (RKH) - Position initiated in the Falkland Islands driller as the stock slipped to 45p this week after last week's spudding of the Sea Lion prospect. 

Greek problems get worse

Greek Prime Minister George Papandreou has asked the European Union and the IMF (International Monetary Fund) to initiate the recently negotiated €40bn emergency aid package. Earlier this month, a deal was agreed under which eurozone nations would provide emergency loans of up to 30bn euros ($40bn; £26bn) in the first year, with a further 10bn euros coming from the International Monetary Fund (IMF). Greece has 300 billion of outstanding debt with 56 billion euros due to be refinanced this year.

Moody's cut to Greece’s sovereign debt rating from A3 to A2 and warned of further possible downgrades added to pressure on the troubled country. The downgrade came after the European statistics office Eurostat increased Greece’s budget deficit in 2009 to 13.6% from 12.7% and warned that too could be revised further. Greece is aiming to cut its public sector deficit to less than 3% in 2012.

Confidence in the Greece economy has continued to fall, pushing its cost of borrowing to record levels in recent days as investors continue to worry that the government's attempts to curb the deficit will fail given the country's history of issues such as lax tax collection. On Friday evening, thousand's of protesters took to the streets of Athens to demonstrate against further austerity measures. The yield, or interest rate, on Greek 10-year bonds, fell to as low as 7.99% after Mr Papandreou spoke, after rising to nearly 9% on Thursday - its highest level for more than 10 years. It then crept back up to 8.66%.

The question is for government debt investors is what country could be next. Portugal, Spain and Italy look like likely candidates for pressure as their sizeable debt comes up for refinancing and if investors have little appetite to take on this debt or if the interest rates demanded are too high for the economies to sustain, we could see Greece being played out again.

But fell eurozone members have their own political problems. The German opposition SPD is demanding a full debate on their portion of the aid package which could delay any German contribution.

As George Soros warned last week, Greece is starting to experience the "Greek death spiral" as interest rates on the open market have climbed to unsustainable levels.

UK growth still sluggish

The UK economy continued to recover from recession in the first three months of 2010 with GDP growing by 0.2% in the 1st quarter according to the the Office for National Statistics (ONS). But this was weaker than the 0.4% growth predicted by many economists. The final quarter of 2009 saw GDP growth of 0.4%, revised up from an initial estimate of 0.1%.

The ONS said the particularly cold weather seen at the beginning of the year may have had an impact on  the economy, particularly in the retail and industrial sectors, although growth came from the financial and business services sector, which saw growth of 0.6% and manufacturing output grew by 0.7% over the quarter.

UK borrowing hits post war record

The U.K. government will borrow  a staggering £163 billion this year,  but down £12 billion from forecasts last year and £3billion less than projected in the budget.  This equates to £3,200 for every adult in the United Kingdom. 

Ithaca Energy announces $140 million debt financing

Good news from Ithaca Energy today with the announcement that they mandated Bank of Scotland as lead arranger on a $140 million senior secured borrowing debt facility. The money will be used to fund the development of the Stella field and the satellite discoveries Harrier and
Hurricane and/or fund future potential acquisitions of production properties in the North Sea. Furthermore the company confirmed that engineering scoping work has already started on the Stella development and satellite discoveries, Harrier and Hurricane based on the outcome of the Stella
appraisal well.

Iain McKendrick (Chief Executive Officer) commented:
"Further to our strong 2009 financial results and the very encouraging Stella appraisal well, the Company is well positioned to grow. This facility provides a major building block towards funding the capital expenditure required for the development of the Greater Stella Area but also the flexibility to finance a significant acquisition. The high level of support offered by the Bank of Scotland to Ithaca reinforces our view of the underlying strength of the Company cash flow and reserves".

The share price has responded positively with a rise of 5.7% to 177p despite a falling market. It means that the threat of a dilutive placing or rights issue has been avoided which is good news for Ithaca shareholders.  The company now has the prospect of a fully funded programme to exploit the Stella field and opportunities to pick up other assets which should drive earnings significantly upwards in 2011.

IMF predicts Europe growth will lag U.S.

The International Monetary Fund (IMF) is predicting that growth in euro area would lag that of other developed economies reducing its growth forecasts in the region to 1.5% in 2011 from 1.6%. It revised up its prediction for U.S. growth next year from 2.4% to 2.6% with the U.K. being revised down from 2.5% from 2.7%.

The IMF forecasts world growth at 4.2%, up from 3.9%, with 2011 unchanged at 4.3% growth. This supports the view that investors should be focusing on companies with a global earnings profile, not those with a large percentage of its earnings in the euro zone or the U.K.

IMF proposes global bank tax

A leaked report from the IMF (Internatioal Monetary Fund) has proposed two new global taxes should be levied on financial institutions to pay for possible future financial crises.

A Financial Stability Contribution, would be used to create a fund to help pay for any future government support. The second tax, called a Financial Activities Tax or FAT, would be levied on pay and be based on both the profits and remuneration of financial institutions.

The IMF prpposes that the Financial Stability Contribution should be applied on bank balance sheets, specifically their liabilities, to stop banks becoming "too big to fail". Each country should aim to raise between 2% to 4% of gross domestic product over the long term.

Given intense political pressure in many major economies to claw back some of the huge state bail outs during the financial turmoil of 2009 and prevent future failures it is likely that some form of tax will be agreed by global leaders. The eventual size of the tax contributions needed by financial institutions will dictate the impact on their future earnings. However, they are unlikely to be of such a size to trouble shareholders unduly.

UK inflation rises above expectations

The Bank of England's target measure, CPI inflation, increased to 3.4 per cent, up from 3 per cent in February mainly due to surging fuel prices as the price of oil moved above $80 a barrel. This means it is now the fourth month that CPI inflation has remained above the Bank's 2% target. Core inflation, which takes out the impact of food and energy costs, also moved up from 2.9% to 3% and RPI (Retail Prices Index) inflation, which includes housing costs, also rose to 4.4 per cent in March from 3.7 per cent. The average cost of a litre of petrol is now 120.9p compared to 95.2p in the same period in 2009, according to the AA.

This may mean that the BOE may move to tighten interest rates from the rock bottom 0.5% level sooner than expected if the GDP numbers due Friday are also robust

Goldman Sachs and Coke deliver strong quarter

Goldman Sachs (GS) has just reported that its quarterly profit doubled compared with the same period a year earlier. Goldman's net income rose to $3.3 billion, $5.59 ashare, from $1.66 billion, or $3.39 a share in the same period in 2009. Estimates were for earnings per share of $4.16. Top line revenue rose 35% to $12.78 billion.

The earnings news has created significant controversy after the news that the SEC was investigating Goldman for potential fraud on a CDO product announced last week and the Financial Services authority (FSA) announcing their own enquiry today. Prime Minister Gordon Brown said he was shocked by the "moral bankruptcy" exposed by the SEC's suit.

Coca-Cola (KO) reported increased earnings of $1.61 billion, or 69 cents a share, from $1.35 billion, or 58 cents, earned in the year-ago period. Adjusted net income was 80 cents a share and revenue rose to $7.53 bn, up 5% versus a year ago as the company delivered volume and market share growth. Analysts estimated earnings of 74 cents a share and revenue of $7.66 billion.

Portfolio review of the week April 17th 2010

Markets fell heavily yesterday after consistent gains earlier in the week, as Goldman Sachs (GS) posted a 13% drop to $160.7 on fraud charges brought by the Securities and Exchange Commission. The drop was the biggest one day fall in the stock's history. Technology stocks were also in the red with Google (GOOG) dropping $45 dollars or 7.5% to $550 on first quarter results.

The Dow Jones Industrial Average finished Friday down 125 points, or 1.1%, to 11,018. Despite the fall, the DOW showed its seventh week of gains. The S&P 500 Index fell 19.5 points, or 1.6%, to 1,192, below the key 1,200 technical level. The FTSE 100 index dropped 81 points, to 5,744.

The SEC, has accused Goldman Sachs and a London-based executive director, Fabrice Tourre, of failing to disclose information about a synthetic collateralized-debt obligation (CDO), related to subprime residential mortgage-backed securities. It also is said to have not disclosed the role that hedge fund Paulson & Co played in the portfolio-selection process and the fact that the fund was shorting the CDO. Investor's lost around $1 billion in the investment.

On the portfolio front it has been a relatively quiet week as I have trimmed long positions on the run up. Some shorts on the FTSE 100 and DOW placed yesterday morning could have been extraordinarily profitable following the Goldman news but were unfortunately not closed at the lows of the day. Its a waiting game for Contrarian Investor UK at the moment as I'm not rushing to commit extra funds into this market.

GW Pharma (GWP) - The portfolio's largest holding had a good end to the week with a 4.5% rise yesterday despite the market falls to finish at 114p. I am puzzled at what is driving this gain as the approval of the UK and Spanish national licences are not expected for Sativex for some weeks yet. May and June will be the months where the exciting news flow starts to come so its a question of watch and wait. Hopefully this will move up gradually over the next few weeks as the regulatory update in March hugely de-risked this share.

Nighthawk Energy (HAWK) - A short term trade was placed this week on news of a drilling update and director buys. Position closed at 29p.

Ithaca Energy (IAE ) - Following news from the appraisal well on the Stella field in the North Sea a position was initiated but not in the Contrarian Investor core portfolio as this will be a longer term story.

Goldman Sachs charged by SEC with misreporting and drives down financials

The U.S. SEC (Securities and Exchange Commission) has charged Goldman Sachs & Co (GS) and one of its vice presidents with misstating and omitting key facts about a financial product related to subprime mortgages. Goldman shares are currently 20 dollars to $164, and the statement has had a significant impact on the overall market with the DOW industrials currently down 60 at 11,090 and FTSE 100 down 56 at 5,767.


Shorts on the FTSE and DOW placed this morning were closed with this fall.

UK government moves into profit on RBS stake

Royal Bank of Scotland Group PLC (RBS) is up 8% today to 50p as Bank of America Merrill Lynch said the 84%-government owned bank could turn to a profit this year as bad-debt charges and costs fall and margins increase. It thinks RBS shares could double in value over two years on an improved earnings outlook and raising its target price from 45p to 65p. Morgan Stanley also increased its target price on the bank to 50 pence from 40 pence on lower impairments, good asset quality and capital position.

The U.K. government's spent £45.2 billion rescuing RBS in 2009 at an average price of 49.9p.

General Electric beats 1st quarter estimates

General Electric Co. (GE) has just announced that its first-quarter earnings fell 32% to $1.87 billion, or 17 cents a share, and revenue fell 5% to $36.61 billion. From continuing operations it earned 21 cents a share, compared to estimates of earnings of 17 cents a share on revenue of $37.3 billion. Its financial arm, GE Capital, saw its profit drop 41% to $607 million as revenue fell 10%.

The company said it may evaluate additional restructuring that will improve earnings power going forward.

Google earnings rise 35% year on year in first quarter

After the close last night, internet search company Google (GOOG ) said first-quarter revenue was $5.06 billion and net income rose to $1.96 billion, or $6.06 a share, from $1.42 billion or $4.49 a share in the same period in 2009. Excluding special items, earnings for the 1st quarter were $6.76 a share against analyst expectations of $6.60. Google's rate of paid clicks, or the number of times users clicked on its advertisements and generated revenue, rose 15% from the same quarter last year. It had posted 13% growth in paid clicks in the prior fourth-quarter report. Analysts had been looking for first-quarter paid click growth in the range of 12% to 14%.

Some analysts were concerned that it had begun to hire aggressively again in the first quarter, meaning that its total costs and expenses rose to $4.3 billion from $3.6 billion in the same period last year. This drove the share price down 26 dollars to $569, a drop of over 4%, after hours. When out of 27 analysts, 25 have it as buy or overweight this shows the weight of expectation on Google's shares. Although the company beat estimates, the earnings outlook for the rest of the year has moved the share price down. It must be a legitimate concern, whether GOOG can continue driving earnings growth at the same rate if costs rise, its "bread and butter" search engine ads slows down, its exit from China curtails future growth and its acquisitions such as YouTube continue to disappoint in terms of monetization.

It seems the hypothesis that ad spending was going to increase substantially in 2010 is playing out. Companies such as ITV in the UK are already seeing the benefits of this rebound in their share prices with it touching 69p today, 20p higher than the point in March when Sky offloaded its stake. Frustrating to have sold out at 60p!