ITV looks good play on advertising recovery

ITV revenues look to be strong in January (up 6.5% versus 3% for the total TV market) as revenues from advertisers floods in (source Aegis group),

With Archie Norman taking the helm at the company and a strong rebound in media expenditure looking likely, and Goldman Sachs adding ITV to its conviction buy list with a 70p target,  now seems to be a good time to invest in ITV.

Position initiated at 58p.

Update on portfolio - January 5th 2010

Nighthawk Energy (HAWK)
Average buy price 35p. Currently 35.75p to sell. Hold with news from Revere and Jolly Ranch project imminent.

Coal of Africa (CZA)
Average buy price 99p. Currently 115p to sell. Rising South African Coal prices driven by strong Indian Subcontinent demand have moved the share price up from the £1 level. Further news on Vele project and move from AIM to main market are catalyts for further share price appreciation. Holding.

Desire Petroleum (DES)
Buy at 85p. Sold at 108p. Placing and open offer deadline extended to January 11th. Open offer at 70p means that shares may well be sold on receipt which may depress share price during mid January. Watching for possible re-entry.

Falkland Oil and Gas (FOGL)
Buy at 132p. Holding at 128p.

JP Morgan Emerging and Templeton Emerging.
Short positions closed at loss due to continued strength in Emerging markets stocks.

Micron Technology (MU)
Buy at $10.3 closed at $11. Share on watch for repurchase.

Amgen
Average buy at $57.5. Currently at $57.8. Holding due to imminent drug approval news.

GW Pharma (GWP)
Buy at 84.5. Currently 88p to sell. Holding with European Medicines Review agency due end January. Approval of Sativex lead drug likely Q1 2010.

EDUCATION SEGMENT: Contarian Investor's investing mistakes laid bare - one's you can avoid!

I would be the first to admit that I’ve had my share of expensive mistakes when it comes to investments. I first started investing in 1998, prior to the technology/internet bubble. In those days it was easy to make money! You bought an internet stock with no profits in sight or a hot Nasdaq stock like Amazon or Ebay and you just watched your profits grow by the week as the stampede to buy shares by the "man in the street" turned into a frenzy. There wasn’t a thought given to valuations - was a loss making company worth £1 billion, who cares? Solid companies like utilities or even Buffett's Berkshire Hathaway, which actually made profits, were sold on mass to fund purchases of hot tech. Technology funds sky rocketed and Initial Public Offerings (IPOs) for new companies on the market double, tripled or more in the first 24 hours. The news papers said it was the place to be, the start of the next revolution.

Of course in the end it all ended in tears for many amateur investors. Although I did well at the time the mistake I made was calling a bottom on the carnage and bought back too early. I made the fatal error of looking at relative prices. For example if something was £35 in 2000, well surely it must be worth £5. No way, it was worth 5p before I knew it. A lot of people lost an awful lot of their hard earned savings at this time and it was probably their first foray into the stock market. Many of them would never return again to the world of investing. Looking at a valuation of a company in relation to its expected profits is so important and also accepting that sometimes you make a mistake a cutting your losses are major lessons I learnt in the early part of the new millennium.

Then in my early investing years I took all those magazine and newspaper tips with a little too much enthusiasm. Share magazines and Newsletters can be helpful to give you the low down on what’s going on in the market but the weekly buy or sell tips are often fairly speculative and you can easily lose your shirt if you’re not careful. Many small cap shares in the U.K. are sold via market maker intermediaries. These guys set the price of shares and of course they read these tips and move the price up as soon as the tip is published. Readers buy immediately at this inflated price. I often find some good ideas in magazines and through internet sites but I often hold back, take a good look and then wait a week or so for the price to settle down a bit.

Internet bulletin boards can also be a curse on the small investor. During the tech boom in 2000 dubious posters so called “pumped and dumped” dodgy stocks on the basis of “hot inside information”. 95% of the time most of the information was wrong or even intentionally misleading with the intention to try and get uninformed investors to buy shares in the worst type of companies. The British site www.iii.co.uk has good discussion forums but everything that is said should be treated with extreme caution. Always do a check on information before you go ahead and trade. I well remember trawling these bulletin boards looking for my next investment and ending up with egg on my face most of the time.

Then there were the “punts” on high risk oil exploration or mining companies. There was a Caspian sea oil exploration company called Atlantic Caspian which was drilling for oil. Of course they didn’t find a thing and the company is no more. Fortunately I saw the writing on the wall before the end and sold out in the nick of time but I still lost money. Then there was the catastrophic investment in Asia Energy based on a “sure thing” tip, an AIM listed company trying to exploit a licence to cut coal in Phulbari province in Bangladesh. I remember the day well when I was driving home from work and listening to the BBC radio news when it announced a riot in Bangladesh with several people killed by riot police protesting against the potential open cast mines impact on their villages. Of course the price crashed. The company is now called GCM resources and is still trying to get the project off the ground 2 years on. Great lesson here, be very careful when investing in individual stocks in politically risky parts of the world. Collective investment vehicles like unit trusts/mutual funds are a far more sensible way to trade if you have a taste for the emerging markets. If I ever get a tip now where I’m told it’s a no brainer I always think to myself these days that “tips are strictly for waiters”!

I wish I could say that there was a magical formula for success as some books and newsletters claim but unfortunately there isn’t. Making money in shares is about research first and foremost. Adapting your strategy in light of current events is also very important. Who would have believed a few years ago when the banks were generating huge profits that in 2008 the Wall Street investment bank Lehman Brothers would fail and the U.K. government would nationalize Northern Rock as well as taking major stakes in many of the other British banks. In early 2008, the analysts were talking up commodities based on the “super cycle” theory which had the flawed hypothesis that prices would continue to climb into the stratosphere. Then there was the so called “decoupling” hypothesis with the forecast that the BRIC economies (Brazil, Russia, India, China) would be able to produce sustainable double digit growth even if the mature markets of Europe, Japan and the U.S. went into recession. Again, the crash in Emerging markets during the end of 2008, put pay to this assumption.

And it seems I am not alone in making mistakes. I was at a meeting with a private investor and he commented that he had bought shares in the U.K. retailer Marks and Spencer back in 2008. When I asked him why he had bought a retailer just at the time the U.K. was in recession and retailers were struggling (in fact many were going bust at this time in December 2008), he said “well they looks cheap compared to where they were before. I’m down 50% on my investment but I’m sure they’ll come good”. I respond ended well they just might get cheaper! Another short term investment turned into a long term investment!

Of course, mistakes are made, lessons are learnt and you move on. The famous Hedge Fund Manager, George Soros, who made his name by “breaking “ the Bank of England by betting against the pound and hoping it would leave the ERM (Exchange Rate Mechanism) .On Black Wednesday in 1992 the Chancellor of the Exquerer Norman Lamont admitted defeat and the pound was devalued netting Soros a reputed $1.1 billion., In a recent book called the The Crisis of Global Capitalism, he said “Most people are reluctant to admit they are wrong; it gave me positive pleasure to discover a mistake because I knew it could save me from financial grief”.

The most common mistakes I have made or seen are:

1. Not being diversified enough

Having too concentrated a portfolio in a certain sector or too much concentration of money in only a few shares can be the kiss of death if sentiment turns against it. If you put all your eggs into one basket your risk profile goes up significantly. Look at all those people who lost everything in the U.S. energy company Enron collapse in late 2001. In 2000, it claimed its revenues were over $100 billion and Fortune Magazine named it as America’s most innovative company for six consecutive years. Sure the profit manipulation by senior management including founder Ken Lay took many years to expose but thousands of investors poured their entire life savings into the company buying all the way down from a high of $90 (when insiders were selling huge blocks of stock) all the way down to virtually zero. The Enron sage is of course very sad for these people but they never should have put all their savings in one stock, especially not their pension funds, into this one company.

2. Not doing the right level of research
Most private investors are reluctant to delve into some of the fundamental measures such as debt, profitability and therefore fail to foretell potential issues down the line such as debt restructuring, dilutive share issues and the like which can hammer a share price. I have recently read a popular share dealing book written by a non professional investor and I was surprised that he felt that this sort of homework was unnecessary. I am not saying that you need to be accountant delving through the Profit and Loss Account and the Balance sheet but a lot of the web sites not can show the main measures without ploughing through pages of numbers. Take a 30 minute look at the financials and check out some other potential warning signs such as director share selling, big institutional sales, recent profit warnings.

Trading in U.S. shares has the advantage that all the quarterly earnings reports are accompanied by analyst conference calls which are available to download by private investors. Transcripts are also available on websites such as www.seekingalpha.com.

3. Being hit by despondency following some bad calls

How many potential investors buy a stock or two on a hot tip, lose a fortune and then never return to the stock market ever again as they lose half their money in 3 months. The answer is quite a few! Over the long term stocks have outperformed all other forms of investment. This is especially the case with companies that pay sustainable and growing dividends. In periods of poor stock market performance, the yield of the major indices such as the FTSE 100 can be substantial, this is the dividend payment as a proportion to the share price. You are effectively rewarded for holding a share and this payment can be higher than a savings account. Make your mistakes, learn from others mistakes and swallow your pride and move on. Persevere with the markets, it can be a lot of fun.

4. Buying shares on tips not on the basis of research
Newspapers and financial magazines can be a useful source of information about the markets in general or news on a particular stock. However, never buy or sell shares based on just what you read in these publications. Check facts, do your research and wait for the price to settle before you jump in. Remember that hot tips from the guy at the pub that says that company X is going to be taken over next week should be treated with extreme caution.

Brokerage reports are another area of caution. Many analysts are late cuttings their earning s estimates and their recommendations on a stock, How many “top analysts” were still recommending banks in 2008 when the financial crisis was beginning to play out?

5. Not cutting losses when the share price drops sharply and waiting for the rebound – “don’t let a short term investment become a long termer”

It is hard to admit you’ve made a mistake and sell a losing investment. Human psychology plays a part. It is much more effective to deploy your cash working in a company which is solid with a growing share price rather than waiting potentially for years for a dog stock to recover and waiting for that nasty negative figure to turn to a blue positive. Sometimes the losses do recover, most of the time they don’t in a sharply declining stock. Another thing to watch for is the “dead cat bounce” This refers to a very sharp decline in the price of a stock which is immediately followed by a small and temporary rise before resuming its downward path. Often this rise is triggered by short sellers buying back shares to cover their positions or small investors trying to call a bottom which is ultimately reached much later. You should try and ignore the price you paid and think in terms of I am investing my money in the best company or could it grow faster elsewhere.

6. Looking at historical prices and using this as a benchmark

Investors often look at a share price chart and use this as a benchmark of where a price should be expected to return to in the case of shares which have had a heavy fall. A great example of this was the banking sector. UK banks Northern Rock and Bradford and Bingley fell from pounds to zero in less than a year. Just because a share was at a price historically high level never means it will return there. Also be aware of share splits, where shareholders shares are for example doubled up which has the effect of halving a price.

7. Not spreading risk by buying a position all at once

It’s almost impossible to time the purchase of an investment perfectly. If you are buying a large position consider buying in blocks to reduce the risk of a sharp fall in a short period around your purchase. Although this means your dealing costs are increased, by choosing a reasonably priced online broker these can be mitigated.

8. Not taking profits or letting some profit run

Timing is everything as they say. The share pundit Jim Cramer once said “Bulls make money, bears may money but pigs get slaughtered”. What Cramer meant is that you can make money on shares going up or down but don’t be greedy and take a little off the table and bank some profits. If your shares are up 20% on your buy price, perhaps sell 35-50%, leaving your other shares to run whilst you have some nice profit in the dealing account. Conversely many investors sell everything too early. I myself have been guilty of this as the excitement of a gain takes over. Over the next few weeks, the share price has subsequently doubled again making me curse myself for not having more patience. As stated above, taking some profit whilst letting some of your profits run is a good compromise. The advantage of CFDs and Spread Betting is that you can adjust your guaranteed stop loss upwards to guarantee your profit, but if the price drops sharply subsequently your stop loss is triggered and your profit is banked. Some firms even offer trailing stop losses which automatically trail the current share price.

9. Don’t Overtrade
Sometimes patience really can be a virtue when it comes to the stock market. Sometimes it pays to leave the portfolio alone. Research shows that the most successful traders have periods when they do little or no investing. Maybe there just aren’t any really good opportunities, the market is stuck in a range which makes it neither showing value nor over expensive so both long and short investors stay on the sidelines.

10. Don’t take internet bulletin boards too seriously
Watch the bulletin boards on iii.co.uk and advfn.co.uk with interest but don’t base your investment decisions on what’s said on them.

Coal prices drive Coal of Africa(CZA) higher

Coal of Africa (CZA) rose 8.5 % today to close at 112p, as South African coal prices continued to climb steeply on Indian demand. Though the CZA positons show a good profit (buy at 95p), continued upward pressure on Coal prices and news flow means that it continues to be a hold (Vele update, move from AIM to FTSE main market).

Reuters article:
LONDON, Jan 4 (Reuters) - Physical coal prices rose sharply by around $5.00 a tonne for cargoes delivered into Europe on strong buying after the New Year holidays.

South African FOB prices rose less steeply, by around $2.00 a tonne, on renewed Indian buying interest but are expected to move rapidly higher during the next few weeks because demand exceeds available supply, traders and utilities said.

Strong rises in oil and gas prices helped spur coal prices higher, traders said.

"It was the first day back after the holidays and everybody seems to have decided they ought to go out and buy now before prices rise any further," one European trader said.

Widespread, acute shortages of coal at Indian power plants are forcing state and privately-owned generators to cut power production.

Many generators have two days of coal stockpiles or less and port congestion is preventing the import of coal bought in Q4.

Indian traders who have contracted to supply coal to generators have not yet bought all the coal they need because they were waiting for prices to fall.

Several traders are rushing now to find February and March loading South African cargoes and are finding that the few available are rising in price every day.

"There was a February trade today at 88 U.S. cents over the API4 Index for a South African cargo but now you'd struggle to find anything for less than $1.00 over Index," another trader said.

Coal prices have risen sharply over the past two weeks and are set to strengthen further on tight supply and strong demand outside of Europe, traders and producers said.

TRADES
March delivery cargo of multi-origin coal traded via brokers at $88.25 a tonne DES ARA, up $3.00 from the last trade on Dec. 31. 50,000 tonne February loading cargo of South African coal traded on Monday at 88 cents over the API4 Index.

PRICES
March delivery coal cargo was bid at $88.50 and offered at $90.00 a tonne DES ARA on globalCOAL, up $5.00 from last Thursday.February loading South African coal cargo was bid at $82.00 and offered at $86.00 a tonne DES ARA, up $2.00 from last Thursday. A March loading cargo was bid at $83.75 and offered at $86.00, also up around $2.00.

Share tips - CAVEAT EMPTOR! (Buyers beware!)

When the Investors Chronicle Magazine arrived a few days ago  it was interesting to read the analysis of their Tips of the Year 2009. In a year which saw the FTSE All share grow by over 21%, the Investors Chronicle performed well below any fund which just involved putting your money in a straight tracker fund. Their top 20 Buy tips grew on average by 217% (including the assumption that Aero Inventory will no longer exist as a going concern) and their top 20 Sell tips declined by 56% on average. Therefore, you would have been broadly flat in you had invested in these 40 stocks tipped by the IC. The lesson is that magazines are a useful source of ideas and I get many this way, but investment decisions should be carefully researched before committing any funds. Remember, "tips are for waiters!"

Improving outlook for Chip prices and short term trade in Micron Technology

Just before Christmas, chip maker, Micron Technology (MU) reported a fiscal first-quarter profit of $204 million, or 23 cents a share, compared with a loss of $718 million, or 93 cents a share, for the year-earlier period. Revenue was $1.7 billion (compared with analyst expectations of $1.6 billion), up from $1.4 billion for the same quarter the previous year.Micron said revenue from its DRAM products rose 50% from the previous quarter, while sales of NAND Flash products rose 21%, due to higher sales volumes and improving prices.

DRAM (Dynamic random access memory (DRAM)) chips are found in personal computers, while NAND (a type of Flash memory) processors are used in such devices as digital cameras and mp3 music players.

In 2008 and 2009, Memory Chip prices fell through the floor as consumption dropped and inventory levels soared. However, the outlook for 2010 is far more optimistic as corporate IT budgets may finally start to be unfrozen and consumers buy into new PC kit driven by the launch of Windows 7. A reduction in inventory levels gives the potential for substantial chip price upside if consumption growth comes to fruition as the global economic recovery gathers pace in 2010.

A position in Micron was closed yesterday at $10.8 following an entry at $10. Further opportunities to trade long will be exploited on any market weakness, especially if the stock trades below $10.

GW PHARMA (GWP) - Lead drug approval close to fruition

ABOUT GW PHARMACEUTICALS

GW Pharmaceuticals (GWP) was founded in 1998 and listed on AIM, a market of the London Stock Exchange, in June 2001. The Group's lead programme is the development of a product portfolio of cannabinoid prescription medicines, including Sativex® Spray. In 1999 GWP commenced its first clinical trials evaluating different cannabinoid formulations as potential treatments in the fields of Multiple Sclerosis and pain. GW focused on the development of Sativex, an oromucosal spray with two principal cannabinoid components, Cannabidiol (CBD) and Delta-9 Tetrahydrocannabinol (THC). Since 1999, the safety and efficacy of Sativex has been studied in over 20 randomised placebo-controlled trials in over 3,000 patients. In 2003, GW entered into its first pharmaceutical licence agreement with Bayer Healthcare AG for the UK marketing rights to Sativex. This agreement was expanded to include Canada later that year. In 2005, GW and Almirall signed a licence agreement granting Almirall exclusive marketing rights to Sativex in Europe (ex-UK). In 2007, GW granted Otsuka the US development and marketing rights to the product.

Sativex was first approved in Canada in 2005 under Health Canada’s Notice of Compliance with conditions (NOC/c) policy for the treatment of neuropathic pain in MS. This approval was extended to cancer pain in 2007. In May 2009, a licence submission was made for Sativex in the UK and Spain for the treatment of MS spasticity. In the United States, the FDA granted a Phase III IND (permission to enter Phase III trials) for Sativex in 2006. A US-focused Phase IIb/III trial in cancer pain is currently ongoing.

SATIVEX APPROVAL IN EUROPE

GW Pharma submitted the European regulatory submission for Sativex for the treatment of spasticity due to Multiple Sclerosis on 20th May 2009. The UK regulatory authority (MHRA) in effect sponsored the application as RMS (Reference Member State). The application is being progressed through the DCP (Decentralised Procedure) which allows simultaneous approval in all EU member states once the paperwork for a MRP (Mutual Recognition Procedure) has been fully approved.

The DCP procedure timings are as follows: "The applicant requests one country to be the Reference Member State (RMS) in the procedure. After 70 days the RMS circulates the first Draft assessment report. The Concerned Member States (CMS) and the applicant can then make their comments. On the 120th day of the assessment procedure, the RMS circulates another Draft assessment report, including comments on the SPC, package leaflet and labelling texts. There is also a Mutual Recognition Procedure during the next 90 days, in which other Member States generally adopt the RMS's assessment, unless they have important objections on the grounds of a potentially serious risk to public health. In such situations, further discussions will also be held in the Coordination group for Mutual recognition and Decentralised procedures (CMD(h)). Once a positive opinion on products has been taken in the Mutual recognition and Decentralised procedure, translations of the SPC, package leaflet and labelling texts are submitted and a national marketing authorisation is issued"

So 210 days from 20th May is 16th December 2009. Approval will be pushed back as the company receives questions (which stops the regulatory clock) and sends in responses. Given the strong phase III clinical trial data, it certainly looks likely that Sativex approval will be granted by March 2010 in the U.K. and Spain and in the rest of Europe by the second half of 2010.

INVESTMENT CASE

Buy initiated at 84.5p. A likely positive outcome for Sativex approval within a 3 month time frame  backed up by a good package of large scale clinical studies plus the backing of 3rd party players such as Bayer makes GW pharma a long play.

Solid prices for Coal in 2010 boost investment case for Coal of Africa (CZA)

Today's Telegraph newspaper has the following quote, "Analysts from JP Morgan reckon that thermal coal, used in power stations, will rise from $70 to $85 per tonne next year, based on rebounding demand from China and India. While global inventories have been unusually high in the downturn, the bank believes stocks may decline from 40m tonnes this year to 22.7m in 2010.

"Supply will be tight in the next two years," said Stevanus Juanda, a mining analyst. "In the second half of 2009, we have observed sizeable imports of coal by China, due to the closure of mines in the Shanxi region and rise in electricity generation."

Experts are also predicting a shortage in coking coal used to make steel over the next year, driven up 12-fold by demand from China.

Macquarie, JP Morgan and Morgan Stanley estimate that prices may jump by between 23pc and 38pc in 2010, as global demand rebounds." *

As production ramps up at Coal of Africa (CZA),this should translate to solid earnings in 2010.


http://www.telegraph.co.uk/finance/newsbysector/energy/6896140/Old-King-Coal-will-stay-on-the-commodities-throne-for-years.html

AMGEN - A biotech with news and a reasonable valuation

Last week, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) has announced a positive opinion for the marketing authorization of Prolia((TM)) . Prolia (denosumab) is a key bet for Amgen(AMGN) and is critical in weaning the company off its anaemia portfolio.

The licence application for Prolia is for the treatment of osteoporosis in postmenopausal women at increased risk of fractures, and for the treatment of bone loss associated with hormone ablation in men with prostate cancer at increased risk of fractures. If approved by the European Commission, Amgen would receive marketing authorization for Prolia in all European Union (EU) Member States.Approval if expected some time in Q1 2010.

Prolia’s active ingredient, denosumab, has a unique mechanism of action. It is the first and only therapy in late stage development that specifically targets RANK Ligand, an essential regulator of osteoclasts (the cells that break down bone). Administered every six months as a subcutaneous injection just under the skin, denosumab helps stop the process that causes bone loss, resulting in greater bone density, stronger bones and reduced risk for fractures at the spine, hip and other non-vertebral sites.Given its potential to inhibit all stages of osteoclast development through a unique and targeted mechanism, denosumab is also being studied in a range of other bone loss conditions including rheumatoid arthritis, and for its potential to delay bone metastases and inhibit and treat bone destruction in patients with advanced cancer.

The CHMP positive opinion is based on data from six Phase 3 trials. Two Phase 3 pivotal studies with fracture endpoints in the osteoporosis and prostate cancer settings demonstrated that Prolia administered as a subcutaneous injection twice yearly (60mg) reduces the incidence of fractures. All six studies showed

Prolia is also under regulatory review in the United States (U.S.), Switzerland, Australia and Canada for the treatment and prevention of postmenopausal osteoporosis and for the treatment of bone loss in patients undergoing hormone ablation therapy for breast or prostate cancer. The F.D.A. asked Amgen for additional data in late October, which ultimately may require further clinical.

Amgen’s share price is currently $57 and analysts are estimating 2010 earnings at over $5, giving a forward P/E of 11, which is not aggressive for a biotech stock. Recent news that the company has won a patent dispute with Roche relating to its anaemia product, Mircera, gives further reassurance about earnings and the company approved an additional $5 billion stock buy back in Early December (adding to the $1.2 bn left in the previous buyback programme). The 52 week range is $44 - $64.

Given the forthcoming news on Prolia and the unchallenging P/E, Amgen looks to be a good buy for January.

Update on portfolio 27th December 2009

Coal of Africa (CZA): Has risen to £1.00, following buy at 95p, as South African Coal prices for export continue to rise. News on Vele Mine approval still awaited with anticipation.

NightHawk Energy (HAWK): Bought at 35p. After slipping as low as 30p, has stabilised at 33p. News on Jolly Ranch lateral wells and waterflooding at Revere anticipated in early January. News flow should drive signficiant momentum in this stock. The recent takeover of XTO energy by Exxon shows the potential valuations of shale oil/gas plays. An exciting stock to hold for 2010.

Desire Petroleum (DES) and Falklands Oil and Gas (FOGL): Desire purchased at 85p, now at 86p and FOGL at 131p, now at 128p. The Ocean Guardian Rig has reached Las Parmas.

Next leg:
Las Palmas- Recife, Brazil: 2,860 nm @ av. 4.5 kn = 26 days = ETA Recife 19/20 Jan

Last leg:
Recife-FI 1st location: 2,470 nm @ av. 4.5 kn = 23 days = ETA FI [1st location] 12 Feb 2009
@ av. 5 kn = 21 days = ETA FI [1st location] 6 Feb 2009

Amazon (AMZN): Short set at $146. Now at $138. Short closed

Short Dollar/Euro: Euro shorted at 1.51. Short closed at 1.47. Now at 1.43.

Short emerging markets: Shorts placed on JP Morgan Emerging and Templeton Emerging. Both investment trusts have risen since the short. Given momentum in this sector, watching closely with a view to close.

Investment ideas for 2010

Previous posts on the potential of a Dollar rebound came to a fruition, with a gain of over 2% against the euro last week, hitting a 3 month high, after Greece’s debt downgrade and further evidence that the U.S. economy may be coming out of recession faster than the Euro Zone. But a stronger dollar managed to hold back the Dow Jones Industrial Average, which closed down 143, to 10,329 and the S&P 500 fell 4, or 0.4%, to 1102. The U.S. stock market, has now risen 22% in 2009 and over 60% since the March low.

The U.K. FTSE 100 finished the week at 5,197 down from 5,320 as the fall in commodity prices hit the heavily Oil weighted index due to Shell and B.P..

Strong results from Research in Motion (RIMM) and Oracle (ORCL) both propelled the stocks higher on Friday, and for 2010 Technology is looking increasing interesting. Those companies which have been hit by a contraction in revenues during the recession could see better times in 2010. For example, Media companies such as Google (GOOG) and ITV (ITV) should benefit as advertisers return to the market. Chip manufacturers, like Intel (INTC) have already shown signs that inventories are waning and consumption is slowly increasing both in personal computing and Enterprise.

2010 could start strongly as companies spend the cash they had hoarded, replenishing depleted inventories and begin to take staff on after focusing on cost reduction this year. Analyst expect the S&P 500 companies to earn $76-80 in 2010, , versus $61.33 in 2009. U.S. companies cut capital spending by 16% in 2008 and another 32% in 2009 and cash now makes up 9.7% of their assets, well above the historical norm near 6.2%.. This cash is already being put to use, for example, the recently announced takeover of XTO Energy (XTO) by Exxon, and the purchase of Starent and Tandberg by Cisco (CSCO) in October. The inevitable takeover buzz should help to sustain momentum in the market in Q1 and Q2 next year.

But as the global economy starts to expand, interest rates will begin to rise (as seen in Austalia). This will raise debt costs both for consumers and corporate. A higher U.S. interest rate would normally drive the U.S. dollar higher which will make life harder for exporters. However, the Federal Reserve seems set on an agenda to drive growth not fears of inflation so interest rate increases are likely to be modest. In the U.K., the reliance of the economy on the financial sector, and lower growth than the rest of Europe should mean that U.K. rates stay near 0.5% for much of 2010 which may pressurise the pound in addition to the deteriorating deficit situation. Investing in U.S. stocks therefore seems to be a better prospect than the U.K. during next year.

Recommendations for 2010:

Invest in U.S. tech, media, consumer

Reduce exposure to commodities

Reduce exposure to Emerging markets

Reduce exposure to U.K.

BEST ONLINE RESOURCES FOR FINANCE

Here’s my favourite web sites for online financial information, many of which are completely free!

PODCASTS

S&A Investor Radio with Frank Curzio: Itunes Store  S&A Investor Radio

Frank Curzio, ex-host of The Real Story Podcast on the Street.com, now at Stansberry hosts this once or twice weekly show focusing on Wall Street.

The Disciplined Investor: Apple Itunes store The Disciplined Investor or go to http://www.thedisciplinedinvestor.com/

Great insights on the U.S. markets  and guests hosted by Andrew Horowitz once a week

Stocks and Jocks:  Itunes Store Stocks and Jocks

Daily show hosted by Tom Haugh and Jon Najarian. Great analysis of the U.S. market, stock ideas and guests.

Thestreet.com Real Story: Itunes stores The Real Story

Now with Greg Greenberg so significantly inferior to the previous host Frank Curzio but useful wrap to the day on Wall Street

FINANCIAL WEBSITES -  U.S. FOCUS

Marketwatch:  www.marketwatch.com

Great news and analysis site and a lot of good content free of charge

Barrons: www.barrons.com

Partly subscription based but good blogs, news content and stock quote information. Plus access to Barrons magazine online.

Thestreet.com: www.thestreet.com     

Good source of news and some commen.tary, though a lot is subscription only these days

CNBC: www.cnbc.com

Coverage from the U.S. TV station CNBC.

BLOGS – U.S focus

24/7 wall street: www. 247wallstreet.com

Great aggregator of financial blogs, with easy to read lay out.

Seeking alpha: www.seekingalpha.com

Nice list of contributors and very much up to date, breaking news.

Fund my mutual fund: www.fundmymutualfund.com

Lots of interesting commentary on the U.S. market.

FINANCIAL WEBSITES – U.K. FOCUS

Sharecast:  www.sharecast.com

Excellent source of U.K. related financial news

Iii: www.iii.co.uk

U.K.’s premier discussion site focusing on U.K. companies.

Digital look: www.digitallook.com

Good source of research on UK and international stocks including historical quotes, financials, director buys. Plus good portfolio functionality.

Advfn: www.advfn.com

Nice site for real time news, portfolio analysis, real time pricing

Citywire: www.Citywire.co.uk

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Falkland Islands Oil and Desire Petroleum- Exciting opportunity after years of anticipation

After occasionally dabbling with Falkland oil exploration stocks over the last 10 years with relatively little return and huge volatility ,news flow due in quarter 1 2010 means the region is starting to look an interesting speculative play with potentially signficant upside to the current share prices. 


There are 4 AIM listed explorers in the U.K. which offer exposure to the opportunity - Desire Petroleum (DES), RockerHopper Exploration (RKH), Falkland Oil and Gas (FOGL) and Borders and Southern Petroleum (BOR).

There may be up to 60 billion barrels of oil lying beneath the Falkland Islands in the Southern Atlantic. If the potential of the area is fulfilled it will be comparable in size to the world’s largest oil-field, Ghawar in Saudi Arabia, which is believed to contain around 80 billion barrels. The Falklands' North Basin is a relatively benign drilling region, similar to the North Sea with water depths of no more than 450 metres. It is where Rockhopper Exploration and Desire Petroleum, with privately owned partner Arcadia, are operating.The Southern Basin is where Borders & Southern Petroleum and Falklands Oil & Gas (FOGL) have licences, the latter in a joint venture with global mining giant BHP Billiton.

The North Falklands basin is distinctly different from the Southern Basin. The North is an in land lake in a failed rift system.. As the basin starts to pull a part it gets stretched and the rock thins allowing sediment to be deposited in the gap. The gap being thousands of meters. The lake was probably fed by multiple rivers which carry sediment and deposit it in the lake (basin) in deltaic systems. This is similar to the geology of the Gulf of Mexico delta, Nile delta, offshore Nigeria.

In 1998, Shell, Amerada Hess and Lasmo drilled 6 wells in the Falklands North Basin, five of which had hydrocarbon shows (both oil and gas) and one was dry. In 1999, the Oil majors relinquished their licences as given the geographical location extraction was uneconomic at the prevailing oil price of around $10 . The minors then stepped in. Desire Petroleum was founded in 1996 (named after the sailing ship Desire which made the first confirmed sighting of the Falkland Islands in 1592) and participated in the first round of drilling in the North Falkland Basin in 1998. Desire now operates 6 licences in the area, Tranches C, D, F, I, L and the recently awarded PL034. Over the last 5 years, Desire shares have moved in a range from less than 10p (2003) to 114.5p (20009) as interest in the area has followed movement in the oil price and news flow from the companies involved. In the last 12 months it has had a 52 week range of 40-114.5p.


Things have hotting up for Desire becasue the Ocean Guardian rig is currently being towed into the North Falkland Basin and will arrive in February after leaving the Cromarty Firth in Scotland in late November. In September, Desire agreed a deal with UK driller Diamond Offshore to contract the Ocean Guardian for a minimum four-well campaign. It has since agreed to sell-on two additional option wells to its partner in the region, Rockhopper Exploration.Falkland Oil and Gas, which is working in partnership with BHP Billiton, said it was in talks with Desire over using the Ocean Guardian rig as part of a third contractual slot. Over the minimum 80 day drilling campaign, Ocean Guardian could earn maximum total revenue of US$19.6 million with mobilisation and demobilisation fees estimated to be US$16 million.

In the past month £327million has been raised to explore for oil in the Falklands. On 10th September Desire announced that it was issuing new shares in a placing to institutions (£2 million before expenses) and an open offer (£20 million) at 70 pence per share.The total estimated net proceeds of the Placing and the Open Offer will enable Desire to drill at least two further wells in the planned drilling campaign and / or to have the flexibility to test any successful wells. Desire has signed heads of agreement, with Rockhopper for the take up of two of the six options available for additional drilling. At the end of November, Falklands Oil and Gas (FOGL) placed of 43.5 million new ordinary shares at a price of 115 pence per share to raise $50 million to fund its share of the planned drilling programme in the East Falklands Basin and help the company meet its working capital requirements through to the end of 2011.The company's joint venture with BHP Billiton is seeking a deepwater rig to drill the first ever exploration well in the basin and was in advanced discussions with Desire Petroleum over the Ocean Guardian rig. It is ontracted by Desire to drill a four-well programme and is expected to arrive in Falkland waters in February next year. The rig will be used to drill the Toroa prospect, which is estimated to have prospective reserves of 1.7 billion barrels and a range between 380 million barrels and 2.9 billion barrels.The total mobilisation and drilling costs couple with the modifications required for the rig to enable it to drill in this depth of water will cost the company a total £12 million. Other prospects in the area, lie at greater depths and are best suited for being drilled by a drillship or semi-submersible, with the JV currently looking to contract such a rig later in 2010 to complete its minimum work commitment of two wells and possibly drill other discretionary wells. The cost to FOGL for the use of a deepwater rig and the drilling programme is currently expected to be around £30 million.

Bernanke, rates and Dubai add to uncertain outlook

On Friday, the better than expected U.S. jobs number sent the dollar upwards and gold down nearly 5%. But after Ben Bernanke’s speech at yesterday’s Economic Club of Washington he scuppered the suggestion that U.S. interest rates were heading up any time soon. He said, “The improvement in financial conditions this year and the resumption of growth over the summer offer the hope and expectation of continued recover in the new year. However, significant headwinds remain, including tight credit conditions and a weak job market.” This sent the dollar down and reversed the decline in the price of gold.


Today as McDonald’s and 3M earnings disappointed in the U.S. and Tesco failed to hit revenue expectations in the U.K., the Dow was off more than 100 pts and the U.K. Ftse 90 pts. Further debt worries from Dubai also pressurized banks today.

The high volatility of the market underscores that the market is struggling for direction. After seemingly shrugging off Dubai’s worries last week, sentiment seems to be generally weak. However, it is unlikely the market’s will come off too significantly given trading pressure to finish December in strong positive territory.

A turn in the U.S economy - what now for 2010?

With data flow increasingly indicating that the major economies of the world are either already out of recession or close to it, the period of unprecedented economic stimulation and low interest rates may be coming to an end. Although the Federal Reserve is unlikely to increase interest rates quickly, it would not be unexpected that rates would be on the increase in the second half of 2010.

With a tightening of interest rates on the medium term horizon what does this mean in relation to certain sectors:

1. The down spiral of the dollar against other major currencies will certainly end. Currently investors can borrow at very low U.S. rates and invest elsewhere in the world for greater returns, the so called "carry trade". If U.S. interest rates rise in 2010 this should have the effect of stabilising the dollar and reducing returns on the carry trade. If the U.S. government  acts to get the deficit under control as the country comes out of recession this will accelerate the strengthening of the dollar.

Trade: buy U.S. dollar

2. The earnings of the major financials such as Goldman, JP Morgan, Barclays, Credit Suisse have been helped in recent quarters by the low cost of borrowing and the demise of competitor institutions such as Lehman Brothers. As interest rates rise, making money by borrowing cheap money gets harder.

Trade: Cautious shorts on financial stocks

3. There has been a huge move into gold as fears of hyperinflation grow and as a hedge against the weak U.S. dollar. If the U.S. dollar strengthens this should pressure this trade. Unlike copper, platinum and other precious industrial metals, gold has limited commercial use (apart from Jewellery) and produces no income .

Trade: Short gold

4. Buy consumer sensitive stocks. As the global economy emerges from recession consumer sensitive stocks should do well e.g. P&G, Unilever