Portfolio review of the week - 19th February 2011

Despite continued violence in Bahrain and an increase in Chinese interest rates to curb inflation, the FTSE 100  ended only marginally down at 6,083, a decline of 4 points giving a 20 point or 0.3% rise over the week.  The Dow Jones Industrial Average  rose 73 points, or 0.6%, to 12,391 its highest close for two and a half years.The Nasdaq rose 2, to 2,834, its highest close since October 31, 2007.

Violence is escalating in Bahrain between Sunni Muslim rulers and its Shiite majority population. Though ICE Brent for April was slightly lower at $102.52, after trading from $100.73 to $103.50. WTI U.S. crude finished at $86, down 0.2%.

Despite a strong oil price this week, the Contrarian Investor UK portfolio has suffered a second week of weakness. Its been a week of selling as I have de-leveraged on Xcite Energy (XEL) and sold my stake in Angel Mining.

Xcite Energy (XEL) - Xcite lost 29p or nearly 8% this week to finish at 353p as rumours continue to grow of a fund raising at around 350p to accompany the CPR (Competent Persons Report) which will move contingent resources to proven reserves and allow field development to begin. Though the CPR is expected to be positive, giving reserves of 225-250 million barrels of oil for the Bentley field, at least £200 million in shares is likely to be placed with institutions. With the price spiking to close to 400p last week on takeover rumours and with the likelihood of share price weakness, I took the opportunity to sell some of the holding to allow funds for acquisitions of other shares in the case of a market fall.

Bowleven (BLVN) - Bowleven dropped yet another 3.2% this week with news from the Sapele 1 side track several weeks away. At 318p, this appears bargain basement given the resources already discovered in Cameroon but sales by the BT Pension fund have helped move down the price. Frustrating given the upside potential in this share and it is now 9p below the last placing in October 2010.

Rockhopper (RKH) - Rockhopper dropped another 5% this week with the impact of the market disappointment from the 14/10-3 North Falklands basin well still being felt. The spudding of 14/10-4 which is much closer to the SeaLion discovery is due any day.  On fundamentals Rockhopper now looks very cheap. Its market capitalisation of £682 million, means that with £200 million in the bank deducted, Sea Lion's 170 million barrels are valued at just over $4 a barrel with no upside whatsoever. 14/10-3 is likely to add 40 million barrels to the discovery alone. Painful to be down on this one, but I believe patience will be rewarded and buyers will return with 7 wells yet to be drilled and a high COS (probability of success) on the new well.

Angel Mining (ANGM) - I lost patience with Angel Mining after we went into the 3rd week of February with no news from their Nalulaq gold mine. In my view no news is bad news, so I sold. Good long term prospects but things are very tight on cash flow and the last thing investors need is a cash call or increase in the SEDA (equity drawdown agreement).

Weatherly International (WTI) - Good to see copper miner Weatherly bounce on Friday to 12.4p (but still 5% down on the week) on news that Blackrock Smaller Companies has built a 7% share. This doesn't surprise since the constantly widening spread seemed to indicate the the market makers were playing some sort of game to accomodate some large block buys. Its good to see Blackrock involved to a greater extent a long with Gartmore as production ramps up in this really exciting Namibian copper company.  I am sure that we won't be seeing 12p for long with Copper at record highs and so much news to come from WTI in the coming months. I put a big slug into my SIPP pension plan earlier in the week because the risk/reward was excellent at less than 12p.

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.

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.

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. 

Markets finally slip after 8 days of gains

After 8 days of gains in U.S. stocks, they closed lower on Friday, with worries about the state of the Greek bail out returning and a retreat in the energy and commodity sectors. The Dow Jones Industrial Average, closed down 37 at 10,742, but was up 1.1% on the week and registered its 3rd weekly gain. The FTSE 100 initially move up to 5,685, levels not seen since 2008 in afternoon dealings, but the index closed at 5,650, up only 8 as the U.S. market moved into reverse.

After an an upbeat trading update from Lloyds Banking Group (LLOY) that the company will be profitable on a combined businesses basis in 2010, its shares moved up 8% to just over 60p. The company is 41% owned by the U.K. tax payer and the price is fast approaching the 74p the government paid to bail out the bank. Royal Bank of Scotland gained nearly 6% to 44.45p (close to the 50p government investment price), and Barclays rose almost 2% to 359.6p.There are rumours that Alistair Darling, the Chancellor, will announce that the Treasury will start selling these bank assets perhaps as soon as the Budget next week.

Markets trade at highs and Contrarian Investor UK trims holdings

The DOW Industrials are currently up over 50 points, up for a seventh straight day, and trading at a 17month high. The FTSE 100 is up also up 38 points. Stocks are on the move up again amid optimism over the Federal Reserve sticking with its low interest rate stance for the foreseeable future and as expected, the Bank of England confirming that its Monetary Policy Committee voted unanimously in favour of keeping U.K. interest rates unchanged at its meeting earlier this month. Also, the U.S. Producer Price Index declined 0.6% in February, its largest drop in seven months. Taking out food and energy costs, the index gained 0.1%.  In the U.K., the number of people claiming unemployment benefits fell unexpectedly last month with those claiming Jobseeker's Allowance dropping by 32,300 to 1.59m in February, the biggest monthly fall since 1997 and against forecasts of a rise of 8,000. The jobless rate now stands at 7.8%. However, long-term unemployment, which includes those out of work for over a year, jumped by 61,000 to 687,000.

Finally commodity stocks were on the rise, Goldman Sachs issued a research note forecasting a surge in global demand. 

Against this background of euphoria, the traditional defensives (pharmaceuticals, tobacco and utilities) are being sold off. With over a week of daily rises, the stampede into the markets doesn't seem to be abating. Contrarian Investor U.K. is using this strength to sell more positions with the final tranche of Micron Technology and the Intel position bought yesterday being closed off this afternoon. The market may have more steam in it, but I am happy to hold some cash on the sidelines for now. As well as economic concerns, the Iranian Nuclear saga looks to be coming to a head and there is risk of an escalation of tension in the Middle East if Israel adopts a hard line, perhaps even risking Military action. As oil moves over $80, any such tension in the Middle East will push oil well over $100, which will undoubtedly stifle this muted global economic recovery. Then there are all the sovereign debt problems which are not going anywhere fast. Time to take a contrarian view, and move into a defensive stance for now.

Big day for markets with U.S. jobs data due later today

This afternoon at 1.30 pm GMT , the U.S.  Labour Department will report on the number of nonfarm payroll number during February.The consensus is for payrolls to decline by a seasonally adjusted 50,000 - 80,000, with the unemployment rate going up to 9.8% (against 9.7% in January), partly due to the bad weather in the United States during the month. Contrarian Investor is expecting a great deal of volatility in both the U.S. and U.K. markets as the numbers are announced. 

The FTSE 100 hit an 18 month high this morning of 5,557 up 30 points on the day. DOW industrials futures are currently up 18 pts at 10,464. At these levels, the markets are looking a little overheated and I am considering a short on the FTSE 100 this morning on anticipation that the non-farm payrolls will be in line or fall short.

Positive start to March on both sides of the Atlantic

The FTSE 100 is currently up 28 points to 5,838 with DOW Futures up 35 to 10,361. Gains in the FTSE were pruned, after Prudential’s announcement that it was going ahead with the purchase of AIG’s Asian business for £23 billion ($35.5) sent the insurer down 11% to £5.34 (when the shares came back from suspension at 10.30, they were down 14%). The acquisition will be funded by a $20bn rights issue, the largest ever seen in the UK. Prudential will also issue $5bn of senior debt, while AIG will receive $5.5bn in new Prudential shares plus $3bn of convertible shares and $2bn of preferred shares. AIG is 80% owned by the US government, which will mean the US taxpayer owning a stake in the UK’s largest insurer.



The news of a possible €25-30 billion bail-out of Greece by Germany and France was circulating this morning. Greek debt would be purchased in the form of bonds, through their respective state owned banks. But the Greek government will need to commit to at least €4bn worth of cuts in public spending which given union opposition may be difficult to execute.


The British Pound has continued to fall heavily against the U.S dollar and Euro today after a weekend opinion poll put Labour only 2 points behind the Conservatives and there were fears that the Prudential deal with AIG would mean it would need to sell the Pound Sterling to buy U.S. dollars . The pound/dollar hit £1.49, a 2% fall on the day. Currency investors are increasing worried that the increasing likelihood of a “hung” parliament will delay any moves to reduce the size of the U.K. budget deficit.

Markets weak on economic worries

Yesterday, the Dow Jones Industrial Average fell 53 points to 10,321, after falling as much as 188 points at its low. The DOW is now down 2.5% for the month. The FTSE 100 index fell 65 points to 5,278. The weakness was driven by poor jobless-claims data from the U.S. which renewed worries about the economic recovery and Moody's potential downgrade of Greece's credit rating. The dollar showed strength early in the U.S. trading session as a safe haven for currency investors but the timing of the stock market reserve coincided with a move back into the Euro as short trades were closed.


Sentiment was not helped by JP Morgan's CEO Jamie Dimon's comments yesterday that he feared that the U.S. economy was heading for a double dip recession.

Markets recover strongly as positive sentiment returns

The Dow Jones Industrial Average ended with a 169 point gain, up 1.7%, at 10,268, the Nasdaq Composite Index rose 1.4% to 2,214 whilst the FTSE 100 gained 76 points to 5,244.

The Dow's strongest component by far was Bank of America Corp.(BAC ) whose shares rose nearly 5% after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program. Also, it reported better payment performance on its credit card loans last month.Sentiment was further helped in the financial sector by better than expected earnings from Barclays (BARC) which drove a 6.8% to £2.94 in the U.K., whilst its American depositary shares soared 13.7%.

The dollar fell as investors took on risk as fears about the impact of the potential default of Greece on the wider European economy ebbed. That helped the prices of commodity related stocks. Gold ended $29.80 an ounce higher at $1,119.80 an ounce whilst oil rose $3 to $77 a barrel after going below $70 less than 2 weeks ago.

Portfolio Review of the week - February 6th 2010

A tough week for the Contrarian Investor UK portfolio this week as global markets fell heavily on sovereign debt concerns in countries such as Greece. The DOW Jones Industrials briefly fell as low as 9850 yesterday before staging a strong recovery in the last hour of trading to finish higher and back over the 10,000 level. Unfortunately, some long bets on the DOW were closed out at the lows , which was frustrating given the rebound. As I talk about shortly, the investment thesis for the holdings in the portfolio are robust and news flow is expected for most of the holdings in the coming weeks which should be a catalyst for share price appreciation. A sell off in the market that we have seen in the last 2 weeks is a positive development given we are now back in the “good value” zone after the rises in January looked unsustainable and stretched the prices of many stocks. The portfolio is now positioned for any change to a more positive sentiment.



Coal of Africa (CZA) – Finally the news that has been awaited for the last 4 months came through with the South African Government granting the new mining order for the Vele coking coal project. Although the share price initially responded well with a 23% one day rise to 148p, the large falls in global stock markets throughout the latter part of the week and rumours that fellow Coal stock, GCM, were selling down their holding meant that CZA finished the week at 133p, barely unchanged. Based on fundamentals CZA looks very solid – rising prices for metallurgical and thermal coal, increasing production coming on stream from Mooiplaats and now Vele, the acquisition of NuCoal brings on stream further capacity, good off take agreements with the likes of Arcellor Mittal (who own a stake in Coal of Africa). Continuing to hold.


GW Pharma (GWP) - Remarkably robust given the overall market picture, with a small fall to 87p. Sativex Cannabis spray regulatory approval in Europe in final stages. News expected in Q1 2010.


Falkland Islands Oil Shares (Falklands Oil and Gas (FOGL), Desire Petroleum (DES), Borders and Southern Petroleum (BOR) ) - A strengthening in the U.S. dollar this week due to fears about debt default in Portgual, Spain, Italy and Greece sent commodities into free fall this week with WTI Crude Oil dipping below $70 on Friday (after being above $80 in January). In addition, posturing by the Argentininian government about the ownership of the Falklands added to the general uncertainty. The Ocean Guardian Rig hired by Desire Petroleum is due to arrive in the Falklands in the next week or so with drilling due to start mid-February. News from Falklands Oil and Gas (which has a farm in deal with BHP Billiton) on a potential sharing of Ocean Guardian is expected in the next couple of weeks with further news on a deep water rig needed to drill in the deeper waters of the South Falklands basin also on the horizon. Despite heavy falls in the Falklands Islands shares this week, with the rush out of oil stocks and riskier assets, imminent news from the drilling campaign should drive prices higher.


ITV (ITV) – TV company, ITV dropped to 53p this week on the general market weakness. The outlook for TV revenues is solid in 2010 and the management team of Crozier and Norman is looking to streamline the business and review the ongoing strategy of the business. Holding.


Nighthawk Energy (HAWK) – HAWK broke through the long term resistance of 30p this week on the weakness in the oil price and now stands at lows last seen during the March 2009 lows at 27p. Despite reasonably positive news from the Jolly Ranch project last week, and confirmation that substantial news on the field would be released this week, the shares continue to take a tumble. The fundamental investment thesis for HAWK, namely the Jolly Ranch and Revere prospects is unchanged. Though Contrarian Investor UK is disappointed in the short term performance, I will continue to hold as news flow does not support this continued erosion in the share price.


Amgen (AMGN) - The stock price fell from close to $60 earlier in the week to finish at $57.5 as sentiment on pharma stocks was not helped by disappointing results from Pfizer (PFE) and Astra Zeneca (AZN). News on osteoporosis drug, Prolia, is expected in Q1 or early Q2. Holding.


Intel (INTC) and Micron (MU) – Semi conductor stocks took a hammering early in the week with Micron falling close to $8 and Intel dipping below $19. Despite the short term weakness, long term fundamentals look positive for chips consumption in both the consumer and business enterprise segments.

Further falls on markets as gloom about Greek, Spanish, Portugese debt persist

The Dow Jones Industrials fell as much as 180 pts today, with the index currently down around 130 pts to 9,875. Long positions on DOW fell through stop losses at 9,850 rounding off a very poor week for Contrarian Investor. The scale of the falls have surprised me and although weakness was expected after the early January euphoria the S&P 500 falling through 1,050 in the space of a week exposed the volatility and unpredictibility of this market. Given the earnings outlook for this year, many shares seem to represent good value.

Another bad week for the markets. Maybe time to top up on volatility?

It’s been a painful start to 2010 for many investors for those that piled in in the early part of January having seen 3 weeks of declines. The Dow Jones flew past 10,700 early in the New Year, but now stands at 10,067 haven fallen every day last week bar one. The DOW, S&P 500 both fell 3% in January and the Nasdaq dropped over 5%.

Friday will be a key day for economic data as the U.S. nonfarm-payrolls data will give important information on the unemployment rate. Key U.S. earnings next week include Pfizer (PFE), Cisco (CSCO), Exxon (XOM) and in the U.K. oil and energy stocks will be in focus with BP (BP.), BG Group (BG.) and Shell (RDSA) reporting

So far 78% of the 220 companies in the S&P 500 reported earnings above analysts' expectations, (Thomson Reuters). In a typical quarter (since 1994), 61% of companies beat Wall Street targets. For the 217 companies that published revenue estimates, 67% topped the consensus expectation.

At around 10,000 on the Dow and with the FTSE hovering just above 5,000, it is still my view that the market offers relatively good value at these levels especially if the UK Bank of England and Federal Reserve continue to signal a continued period of low interest rates.