Interview With Mr. Tim Murray - Oil and Gas Analyst at Northern Securities

Exclusive Interview with Mr. Tim Murray - Oil and Gas Analyst at Northern Securities



Mr. Tim Murray provides research coverage of the oil and gas industry for Northern Securities.
Mr. Murray has over 4 years experience in the investment industry. Immediately prior to joining Northern he was Associate Energy Analyst at Octagon Capital and prior to that was a Risk & Credit Analyst at Altagas Income Trust, an energy services company.
Mr. Murray obtained a B.Sc. in Business Administration from the University of New Hampshire and has completed Level III of the CFA program.

Me: Mr. Murray, what are your current views regarding crude oil markets and stocks at the moment (in the wake of hurricane Dean)and what do your models predict for them moving forward (6 months) in terms of price targets?

Mr. Murray: As Hurricane Dean removed very little production volumes for any sustained period the futures for oil and gas moved downwards with natural gas taking the biggest hit. I'm forecasting oil to drop in the coming months as we believe that the global market is currently well supplied with crude. In addition we are estimating Nymex crude to average US$64.00/bbl for 2008. The two most oil weighted names in my coverage universe are Buffalo Resources Corp. (BFR) target $1.85 and Grand Banks Energy Corp. (GBE) target $1.50. All my target prices are based on 2008 estimates.

Me: Can you also please highlight your views regarding natural gas (in terms of future outlook, price target, company earnings etc.)?

Mr. Murray: Natural gas markets have been very volatile lately and we expect this to continue over the remainder of the hurrican season. Natural gas over the last several months is starting to look like 2006 so if we have another uneventful hurricane season we will once again have nat gas storage numbers running near all-time highs and that should continue to push nat gas pricing downwards. The biggest surprise to us this year has been the larger than expected increase in LNG to the US, if this continues for the remainder of the year we should see even more supply in the market and if the hurricane season is uneventful this should also depress nat gas prices. The majority of the names in my coverage universe are natural gas weighted so cash flows are more suseptable to swing in this commodity. For 2008 we are forecasting Nymex natural gas to average US$8.50/mcf.

Me: I was wondering if you could highlight where in the oil and gas markets you think investors should be focusing their attention - with regards to valuations and investment opportunities (e.g. oil or gas, large cap or mid cap, producers or explorers etc.)?

Mr. Murray: I think during times of uncertainty the majority of investors move into large cap names as the majority of large caps can survive the full business cycle. I believe that many names in the junior E&P universe offer very good value right now as many are trading under net asset value and have the balance sheets to accomplish potentially value added drilling programs over the next six months. I would highlight from my coverage universe Berkana Energy Corp. (BEC) target price $2.15 and Canext Energy Ltd. (CXZ) target price $1.10; once again our target prices are based on 2008 estimates.

Me: What do you think will happen to oil prices if the Federal Reserve cuts interest rates on September 18th and what would happen if they didn’t (i.e. is a rate cut built into current oil prices)?

Mr. Murray: I think the market is expecting a small cut in interests rates and is already reflected in commodity prices. I think the market will continue to focus on the housing situation in the US, and if the market view is that the US economy is slowing than you will have less demand for oil. For natural gas all eyes will be on storage numbers and if we continue to run near all-time highs into the winter months, we expect nat gas prices to continue to be soft compared to historical prices.

Thank You Mr. Murray!

Exclusive Interview - Mr. Elvis Picardo (CFA) - Investment Strategist at Northern Securities

Mr. Picardo provides investment strategy, as well as research coverage for special situations with a focus on life sciences at Northern Securities.
Prior to joining Northern, Mr. Picardo was chief market strategist and research analyst at Global Securities in Vancouver for over seven years. International experience in diverse financial disciplines, including treasury management and foreign exchange in India and Hong Kong, has enabled him to develop a global investment perspective.Mr. Picardo was awarded the Chartered Financial Analyst designation in 1998, and the Canadian Investment Manager (CIM) designation in 1996. Mr. Picardo is a member of the CFA Institute and CFA Vancouver Society.

Me: Mr. Picardo, what are your views regarding the recent Fed decision to cut the discount window rate by 50 basis points?

Mr. Picardo: Credit and equity markets have stabilized following the Fed's move, so it has worked in the short-term to boost sentiment and control the crisis. The longer-term effects of this move cannot be gauged at present. Investors are now looking to the Fed's next meeting on September 18, and my view is that the Fed may most probably cut the fed funds rate by 25 basis points. A 50 basis-point reduction, as some market-watchers have suggested, is unlikely in my opinion, as inflation is still at the upper end of the Fed's comfort zone.

Me: From your last appearance on BNN, I noticed that your recommended gold stocks like Barrick and Goldcorp (would you still recommend them?) – what is your explanation for the sell off in gold spot prices amidst this volatility in equity markets and credit crisis that should have ideally resulted in higher prices for gold?

Mr. Picardo: There are a number of reasons why gold sold off last week -
1. Gold is no longer the safe-haven of choice during periods of market turmoil. 2. During last-week's sell-off, investors flocked to US Treasuries, as a result of which the US dollar strengthened against major currencies including the euro. Gold has a close correlation with the euro, and it moved lower as the euro declined. 3. The selling was indiscriminate across various sectors, and with sentiment so negative, gold could not escape the broad sell-off in commodities.
I still like the quality gold names like Barrick (ABX: TSX, ABX:NYSE) and Goldcorp G:TSX, GG:NYSE), because my view is that gold may be poised to move higher while the Canadian dollar loses steam, a combination that should help earnings at Canadian gold companies.

Me: What are your views regarding the Canadian equity markets, are we currently in the midst of a normal correction (10%) on our way to new highs or has the bull market ended?

Mr. Picardo: This is a much-needed correction that was required to bring a semblance of sanity back to the markets. This bull market has run on for more than four years, so the recent volatility does make one wonder if we may be at the tail-end of this great run. Certainly one of the key drivers of the market in recent months - M&A activity - is unlikely to be a potent force for the rest of this year, given that the cheap money that was fuelling this boom is no longer available in abundance. My feeling is that we may have seen the highs on the TSX for this year.

Me: What are you recommending to your clients in terms of portfolio allocation?

Mr. Picardo: Previous declines of this magnitude have invariably proved to be great buying opportunities during this 4-year+ bull run, but I would suggest it's a little different this time. If the recent volatility is giving an investor sleepless nights, my advice would be to use rallies to trim speculative positions - in other words, sell the rallies, rather than buy the dips. We continue to advocate a defensive tilt to portfolios, and sectors that we think should withstand the turmoil include pipelines and utilities, telecom, healthcare and gold.

Me: Lastly, can you give me you’re favorite stock that you think has the best risk to reward ratio for the next 12 months (and 2 reasons as to why investors should buy it)?

Mr. Picardo: While I cannot give specific stock recommendations, two stocks that look particularly attractive from a reward-risk perspective are Telus (T: TSX) and Goldcorp (G:TSX, GG:NYSE).

Thank you Mr. Picardo!

Video Interviews with Paul Van Eeden, Bill Gross and John Stephenson - August 23, 2007

Some BNN Videos For Ya

John Stephenson, Senior Vice President at First Asset Investment Management, gives his Top Energy Picks on Aug 21, 2007

John Stephenson, Senior Vice President at First Asset Investment Management, commenting on large cap oil and gas and utilities.

Bill Gross of PIMCO saying he’s buying bonds of Goldman Sachs, Bank of America, Merrill Lynch, Deutsche Bank and American Express - August 23, 2007.

Paul Van Eeden, President at Cranberry Capital talking about the credit crisis and his favorite sector to invest in going forward - August 23, 2007.

Short Conversation with Mr. Wolfgang Klein - Investment Advisor with RBC Dominion Securities

A short conversation with Mr. Wolfgang Klein - Investment Advisor with RBC Dominion Securities

Me: Mr. Klein, does your research suggest that the US is headed for a recession or is the current market sell off simply a normal correction?

Mr. Klein: No --not with current data I am reading but as with any form of investment decision, I am willing to change when the facts change.

Me: Can you please highlight your views and outlook on the US dollar and the Canadian dollar?

Mr. Klein: US dollar goes higher in next few weeks, then lower for next few years, and ultimately, when this commodity bull market ends, US dollar goes higher. Apply the reverse to Canadian dollar.

Me: Would you please highlight your outlook for commodities and resource stocks going forward – do you have any favorite (that you consider undervalued) commodities/resource stocks?

Mr: Klein: Commodity bull market still intact, for now. Buy only the best names in each category i.e. Uranium, copper, nickel, oil, gas, gold etc. My new favourite play right now is with respect to the soft commodities, notably the food stocks and with this I am interested in the fertilizer stocks. So own some oil, gold, base metals and now add some food exposure, with the primary reason being that India and China and moving up the food chain.

Me: Lastly, amidst this market sell off do you think investors should be accumulating their favorite stocks or should they be getting defensive (are there any assets/sectors that you recommend they look to as safe havens)?

Mr: Klein: The safe haven stocks have moved up already, notably Shoppers Drug Mart and Tim Horton's. The market has had a nice bounce from its lows, i.e. up 6%. So the only safe haven now is cash. In the short term only buy weakness. Over the next 5 years today's prices could look like a steal.

My clients are about 40 years of age, have a 20+ year time horizon. They own 10-15% banks, 10-15% cash, 10-15% oil, 5-10% industrials, 15% u.s, 10% Japan, 5-10% consumer and 5-10% gold

My advice to all is never panic, never over expose yourself to any stock or any sector, think long term, and when the panic does set in use some of your cash to buy those names you had hoped to buy but were too expensive.

Thank You Mr. Klein !

Interviews with Peter Hodson, Josef Schachter, Fred Kozak, Bill Belovay and Bob Tebbutt - August 2007

BNN Videos

Peter Hodson, Portfolio Manager with Sprott Asset Management – Part 1

Peter Hodson, Portfolio Manager with Sprott Asset Management – Part 2

Peter Hodson, Portfolio Manager with Sprott Asset Management – Part 3

Peter Hodson, Portfolio Manager with Sprott Asset Management – Top Picks

Bill Belovay, Portfolio Manager with Jones Heward Investment Counsel on the Commodities Report

Bob Tebbutt of Peregrine Financial Group talking about whether the Bull Run in commodities is over

Josef Schachter of Schachter Asset Management

Josef Schachter of Schachter Asset Management - Top Picks

Frederick Kozak, Oil and Gas Analyst at Canaccord Adams, highlighting a stock he likes and one he dislikes

Ray Goldie – Base Metals Analyst with Salman Partners talking about the supply-demand scenario in base metals if the US economy goes into a recession

Shares of Khan Resources (KRI:TSX) Plummet 51%

Shares of Khan Resources (KRI:TSX) Plummet 51%

Here’s an excerpt from their August 17, 2007 press release:

“Khan Resources Inc. (TSX:KRI) announces that it has received a notice from the Mineral Resources Authority of Mongolia (the "Minerals Authority") advising that the Minerals Authority has determined that the decision to issue Khan's special exploration license 9282X in respect of the property referred to as the Additional Dornod Property is considered invalid.
This determination does not affect the existing mining license in respect of the property referred to as the Main Dornod Property. Khan indirectly holds a 58% interest in the Main Dornod Property.”

Buy, Sell or Hold?

According to a research note put out by Haywood Securities analyst Jim Mustard, the announcement in regards to the invalid 9282X license does not affect the existing VALID license for the main Dornod property (Exploration License 237A, host to 32.5 million pounds + 15.7 million pounds at the No. 2 deposit), which Khan holds a 58% interest to. Mr. Mustard estimates that “16.4 M lbs is at ownership risk as a result of today’s announcement, leaving Khan with 100% ownership of 27.9 M lbs as opposed to 44.3 M lbs.”

Although he considers the implications of this announcement negative, Mr. Mustard maintains his Speculative BUY rating with a $6.30 target and estimates the NAV (12.5%) for Dornod to be $177.6 million or $3.04 per share on a fully diluted share.

August 20, 2007 Update

In an updated note, Haywood Securities analyst Jim Mustard writes “ Based largely on the increased risk over a portion of Khan’s ownership of the Dornod Uranium Project in Mongolia, we have lowered our NAV, NAV multiple, increased our discount and reduced our exploration credit.”
His new target for Khan Resources (KRI: TSX) is $2:15 (was previously $6.30)
with a sector perform (previously sector outperform) rating.

Click Here For A Yahoo Finance Chart

Buy, Sell or Hold?

After another tumultuous ride in what seems like an endless string of stomach churning days in the markets, a technical bounce may have helped the Dow, S&P 500 and even the S&P/TSX Composite close off their worst levels of the day. At their worst levels during the day, the Dow was down 343 points but managed to close down only 15 points at 12,845.78, the S&P 500 was down 36.04 points but managed to end the day up 4.57 points at 1,411.27 and the S&P/TSX Composite was down as much as 584.98 points but managed to close down 190 points at 12,857.

Among the significant market events in the United States today was the Fed adding another $17 billion in liquidity to the US markets, Countrywide Financial (CFC: NYSE), the largest mortgage lender in the US announcing that it drawn down on a $11.5 billion bank credit line in an effort to access short term cash, cuts in credit ratings for Countrywide and mortgage originator Residential Capital, the Philadelphia Federal Reserve announcing that its index of regional activity showed no growth in factories in the region in August and housing starts reported for the month of July indicated a decline of 6.1% to a seasonally adjusted annual rate of 1.381 million, the lowest since January 1997.

Among the significant markets events in Canada was the announcement by Barrick Gold regarding its exposure of US$65-million in the Canadian asset backed commercial paper market, announcements made by Redcorp Ventures (RDV: TSX) and New Gold (NGD: TSX), two mining companies that announced that a portion of their financial assets were invested in with Coventree (COF: TSX), which is a provider of structured financial products that has been unable to meet repayment obligations without funding. In other news, the Caisse de depot, a pension fund based in Quebec held a meeting with representatives of many Canadian and international lenders to support the market for asset-backed commercial paper (ABCP) and lastly, Finance minister Jim Flaherty reassured investors that the economic fundamentals in Canada remained strong and that he and his colleagues are in constant touch with the Bank of Canada monitoring the situation in the markets.

So should you Buy, Sell or Hold?

In a strategy comment released to clients today, Vancouver based Hahn Investment Stewards & Company, a global asset manager said:

“We can be sure that authorities and central banks will do everything possible to avert a further meltdown. That means quite a few more months of volatile securities and currency markets. At the very minimum, we should expect to see short and sharp recoveries, followed by further declines.
All indications to this point suggest that the financial contagion is still spreading.
We also anticipate that the US dollar may rally substantially versus the major currencies, and also the Canadian dollar. (The CAD has already fallen almost 5% against the USD
from its July peak.) Actually, we think this has a high probability. This view is quite a shift for us. We have been unsupportive on the US dollar since 2001. While we do not yet
suggest that the US dollar is out of its long-term troubles, for an interim period at least —
perhaps a year or two or longer — it is liable to rise sharply.
This trend in turn will have downward implications for commodity prices. Industrial metals markets — and, yes, even crude oil prices — should continue to moderate in price.”

The global asset manager advised clients to focus on safer investments like bonds and income generating securities, gold bullion and gold shares and the Yen.

Interview With Larry Berman (Co-Founder of ETF Capital Management) - August 2007

Exclusive Interview with Uber Technical Analyst - Larry Berman

Larry M. Berman is a Co-Founder of ETF Capital Management, and brings nearly twenty years of industry experience to the role of Chief Investment Officer. Larry has been consistently ranked as one of Canada’s “Top 3 Analysts” according to institutional investor surveys.

Larry began his career as a Toronto based investment advisor in 1989 and completed a technical internship in New York with the Market Technicians Association (MTA) in 1994, where he studied the techniques of many top Wall Street technicians. Prior to founding ETFCM, he was Chief Technical Strategist and Managing Director for CIBC World Markets since 1997. Larry was a senior technical analyst for Thomson IFR in Boston and senior technical analyst and trader for Marleau, Lemire Futures in Toronto

Larry is a Chartered Market Technician (CMT), a Chartered Financial Analyst (CFA), and is a US registered Commodity Trading Advisor (CTA).

Larry is the primary author of the textbook for the technical analysis course offered by the Canadian Securities Institute (CSI), which is the primary source of education for technical analysis in Canada. Larry is past President of the Canadian Society of Technical Analysts (CSTA), past Vice-Chairman (Americas) of the International Federation of Technical Analysts (IFTA), and is currently the Vice-President of the Market Technicians Association (MTA). Larry’s opinions frequently appear in the media, and he is a featured weekly on BNN’s (formerly RobTV) Berman’s Call.


Me: Mr. Berman, what are your current views regarding the S&P 500, the Dow and the TSX (in terms of major support, resistance points and price targets?

Mr. Berman: I expect the current anxiety could lead to a 10% correction for the US large caps (S&P 500 and DJIA). The stock market is cheap by historical standards, so I would not look for a major bear market to develop like we saw when valuations were very high at the 2000 peak. We have corrected 2/3rds of that, so I'm looking to buy further weakness. I expect this anxiety could last a few more months before the subprime contagion has better visibility.

The TSX is quite different due to its composition. Financials right now are very weak, and energy is being supported by hurricane risks to US refining and production capacity. I suspect WTI Crude will hit the mid $60s over the few months. Overall, the correction process is quite healthy since it should help to curb the inflation pressures central banks are so concerned about.

Me: Can you also please highlight your views regarding the metals and mining sector (gold, copper, nickel)?

Mr: Berman: The global mining boom stoked by M&A activity is likely to correct more. I'm looking for the diversified mining sector to fall at least 7-10% more before support is likely to develop. Metals on the LME are all in various stages of corrective patterns. I'm a longer term bull on the emerging market demand for natural resources, so ultimately, the weakness is a buying opportunity.Gold is a different beast. I'm bullish longer-term, but would not buy until the risk reward is more favourable. The XGD in the $65-67 range has been my buy area for the past year. I'm looking for gold to hit the 2006 high of $732 in 2008,but we need to see the Fed start easing to push the US dollar below $1.40 versus the Euro.

Me: I was wondering if you could highlight where in the energy >markets (crude (WTI or Brent), heating oil, gasoline, natural gas etc.) you are currently finding pricing inefficiencies and value?

Mr: Berman: Since peaking around $70 in 2005, we have seen a $10 range on either side of that peak. I'm a longer-term bull, and $100 is in the cards at some point, but I have no idea when. The longer-term fundamentals are bullish, but it could take a decade or more to sustain those average prices.

Me: Question 4: Lastly, could you please highlight one stock, ETF, commodity, bond or currency that your PIC platform identifies as having the best risk to reward ratio for the next 12 months and 2 reasons as to why an investor should look into that stock?

Mr. Berman: The financials are the most oversold right now relative to other points in history. Citi (C US) is yielding 4.73%. This is more than US 10-year Treasuries. I can't rule out some short-term anxiety for the next few months, but longer-term, it should be as close to a sure thing as there is in the stock market.

Thank You Mr. Berman! Go check out ETF Capital Management to learn about Mr. Berman's proprietary investing platform (PICS) and how you can sign up for his incredible research.

Bill Gwozd of Ziff Energy - My Exclusive Interview - August 2007

An Interview With A Natural Gas Expert

W.P. (Bill) Gwozd, P. Eng., Vice President of Gas Services at Ziff Energy, has three decades of natural gas experience. Mr. Gwozd prepared and implemented gas supply contractual purchases and gas storage strategies, directed gas control functions for transportation contractual arrangements, and prepared written regulatory applications. Experience with transportation planning of natural gas liquids pipelines and storage facilities with a leading international integrated producer. Mr. Gwozd oversees the North American Gas Strategies Retainer Service, which focuses on forecast assessments and semi-annual client debriefings. Customized consulting assignments include: long-term natural gas price outlooks, pipeline acquisitions, regional changes in gas markets, North American gas supply and demand forecasts, gas storage development, transportation alternatives, and regional Multi-client assessments. Mr. Gwozd has led numerous client on-site presentations and moderates technical panels at Gas Conferences. He (co) authors monthly client-confidential reports and analyses. Mr. Gwozd is a frequent guest contributor to various TV stations, radio, newspapers, and magazines.

Me: Mr. Gwozd, can you please explain as briefly as you can, your view of the natural gas markets?

Mr. Gwozd: There are 5 sectors that comprise the natural gas markets: Residential, Commercial, Industrial, gas for gas fired power generation, and gas for pipeline fuel. Overall, the gas markets are growing at almost 2% per year. Gas markets consume 70 Bcf/d, so 80 Bcf/d will happen in a decade. The question that industry needs to focus upon is where will this new gas come from? Several logical answers include: Mackenzie Delta (albeit, the economics look fairly challenging), the giant Alaska field (4.4 Bcf/d is possible, although there are several important hurdles that need to be overcome), LNG is gas from other countries and seems the most likely, gas hydrates is possible, perhaps within 20 years, and development of unconventional gas sources such as gas from Coal bed, or Shale, or Tight Gas formations. In your lifetime, the challenges you will face is ensuring that the gas is available when the gas market requires it - that is to avoid outages like what happens in the power sector from time to time. To ensure that this does not happen, industry requires a clear path - in a way - a clearer view on an energy policy - a policy that ensures gas supply balances with gas market needs, not just today, rather in balance over the next several decades


Me: I’ve heard you say in a previous interview that natural gas prices in certain parts of the country can go as low as $1 per Mcf, what implications does this have for the rest of the industry?

Mr. Gwozd: I am on record that gas prices can go to 0 (zero) - that is lower than the $1 per Mcf. Several examples will help clarify:

1) This year, natural gas in the US Rockies region (Denver) fell to $0.15/Mcf for several reasons:
a) surplus gas needs to their local gas demand
b) no incremental pipeline in place to transport the gas to markets
c) growth of LNG to North America

2) Last year, Chesapeake and Questar (two US intermediate sized gas producers) shut in their gas (about 50 to 100 Mcf/d each) to avoid selling their gas at such a low value.
As North America gas prices fall off (especially in the later months of Aug., Sept., and Oct.,) implications for gas producers and support companies might include:
a) scaling back new gas directed gas drilling and 'living' on yesterday's gas
b) shifting capital to oil or oil sands from gas
c) reducing overhead costs

Essentially, the 'consumption' side would see lower costs.

Me: Why is it that natural gas drilling in the United States (indicated via drill rig counts) is so much higher than in Canada and especially Western Canada?

Mr. Gwozd: North America has several 'work horse gas basins'. The US Gulf of Mexico accounts for a quarter of North America gas production similar to Western Canada. The balance of the USA accounts for the remaining half of the production. Consequently, that is an indicator that the US will have more drilling activity. Secondly, most US gas wells are twice as deep as an average Canadian gas well, so the well in the US takes longer to drill and complete. If you were to normalize drilling rig statistics to 100 for 2001, then both the US and Canada declined in 2002. However, by 2003 and through 2006, Canada as a percent of the normalized 2001 year, actually had a greater percent of rigs than the US. For example, in 2005, Canada was at 154% of the 2001 level of Rigs being active, whereas for the USA they had only 126% of 2001 rigs under way. In 2007, the US will average around 1,300 rigs vs. about 200 in Canada.

Me: Lastly, what advice would you give to investors who are looking to invest in natural gas stocks?

Mr. Gwozd: Ziff Energy does not follow stocks, nor invest, nor buy, rather we focus on gas fundamentals. This is quite unique and it means that our advice is not biased. Personally, it is not appropriate for me to invest in the energy sector as I work very closely with energy companies on private assignments.
As to the energy sector, some selection criterion that a person may wish to consider include: % gas vs. % oil in the company and then weigh against your opinion of future price outlooks, the regions the company invests in (sub sections with Canada and in the world), and technology savvy companies who are drive their unit costs down. Natural gas is a volatile commodity in the sense that the price can 'swing' over time, so there is significant risk in investing, although there is potential for high upside.

Thank You Mr. Gwozd!

Marc Faber Videos - August 10 2007

Double Dose of Dr. Gloomy Doom on Bloomberg and BNN

"US stocks are at the beginning of a bear market!" - Bloomberg


Brian Acker of Acker Finley and Marc Faber debating the Bull Vs. Bear case for US stocks (Begins at 14.45 minute mark - BNN)

Americans, Expect A Rate Cut In The Next Few Months

Bloomberg Video

Bill Gross saying he expects a Fed rate cut in the next several months - Aug 7 2007 <--Click For Video

Combine Mr. Gross's predictions with the Fed Fund Futures and you get - this article published today by Marketwatch Market prices near 100% odds of September rate cut

Sprott's Jean Francois Tardif BNN Interview - August 2007

BNN Video

Jean Francois Tardiff of Sprott Asset Management on BNN - August 7 2007 <--- Click For Video

His Top Picks

1) Northstar Healthcare (NHC:TSX) -- Mr. Tardif's Healthcare Play

2) Timminco Ltd. (TIM:TSX) -- Mr. Tardif's Solar Play

3) Torr Canada Inc. (TOR:TSX) --Mr. Tardif's Water Play

John Stephenson (VP and Portfolio Manager at First Asset Funds) - My Exclusive Interview

John has worked as a Wall Street and Bay Street equity analyst, a hedge fund manager and a partner in a management consulting firm. He is currently a senior vice-president and portfolio manager with First Asset Funds Inc. and founder of Report on Money.com and is also the editor of Money Focus (www.reportonmoney.com) a free weekly publication on the economy and the stock market, which shows you where the best opportunities lie for your investment dollar. Prior to starting Report on Money and The McConnell Group, John was the Senior Vice President in charge of utilities research at Kim & Company LLC, a Wall Street investment research company. He was a founding partner of De Novo Capital, Inc., an international asset management company. He was the partner in charge of the energy marketing and trading practice at Navigant Consulting Inc. and a finance professional with a leading energy company.
John received his Bachelor of Science in Mechanical Engineering from the University of Waterloo and his Master of Business Administration from INSEAD. In addition, he holds the designation of Chartered Financial Analyst and Financial Risk Manager and is a member of the Global Association of Risk Professionals.

Me: Mr. Stephenson, can you please explain as briefly as you can your views of the recent market slide we have seen?

Mr. Stephenson: The market slide is related to a growing concern in the US and globally about the risks in the credit markets, particularly as they relate to the subprime market. Many defaults, including several hedge funds managed by Bear Stearns have occurred. As a result, panic selling has ensued which has resulted in the selling of assets of all types.

Me: Can you please give me your summarized views of the natural gas sector and natural gas stocks?

Mr. Stephenson: The natural gas market is a market that is driven by weather. Most of this weather related demand occurs during the winter and the northeastern United States is the driver of this demand. Gas is stored in underground caverns during the summer and withdrawn in the winter. The buyer of this storage capacity is local natural gas distribution companies who are obligated under the law to provide natural gas for industrial, commercial and residential purposes. Injections into storage are irrelevant, however, when a mild winter occurs, the amount withdrawn is small. Currently gas prices are depressed at a time when the cost of bringing on incremental gas supply is somewhere north of $8.00/mcf. This is a money loosing proposition. I am bearish on natural gas weighted producers and very bearish on the service sector. If you see the commodity move and remain sharply higher (i.e. north of $10.00/mcf) this is a screaming buy, otherwise, it is a sector to be avoided. This is a regional product and is not impacted whatsoever by world events or supply/demand relationships in other parts of the world.

Me: If possible can you please highlight your views on the crude oil and crude oil stocks? I've heard analysts offer opinions about crude oil inventories being at the highest they've been in a while and others say that $77/barrel is due to the growing demand and limited refining capabilities; do you have any opinions regarding the above statement?

Mr. Stephenson: Commodities such as energy are cyclical. Everyone knows that. The issue is and has always been, is it different this time around and are we at the cyclical peak. My answers are yes and no. So pervasive is this thinking that even executives in this industry are bearish on the commodity. Unfortunately they are wrong. The refining issue is tangential and refers to the fact that not are we short refining, but we are VERY SHORT the type of refining that we need - namely, refiners that can process heavy grades of crude. In the 1990s, big oil made bets on securing access to several prolific supply basins - their choices were to go to: Russia, Venezuela, Nigeria and the Caspian. Unfortunately, they have all been fraught with political risk. Consequently, they are all trying to buy stakes in our oil sands, which while expensive to produce offer political stability and long-lived resources. The reason they are here is no other. In the 117 year history there has only been six years where year over year demand was less than the previous year. Demand from China and India continues to surge. China is the number two producer of automobiles in the world and doesn't yet export a single car. It is unlikely, in my view, that the Chinese will go back to driving bicycles anytime soon.

Me: Lastly, if you could only hold one stock for the next 6 months which one would it be and why (2 reasons for owning it will do fine)?

Mr. Stephenson: Nexen (NXY: TO, NXY: NYSE) because it is oil weighted and its production is growing by 50% over the next year, therefore it has the best risk/reward balance.

Is the Sub-Prime Mortage Problem nearing a bottom?

Reuters Article

You Be The Judge !

Wilbur Ross Jr. is the Chairman and CEO of W.L. Ross & Co., a private equity fund that buys distressed assets for pennies on the dollars, then turns them around to either keep them for reliable cash flow, sell them or take them public. Mr. Ross has previously done this with International Steel Group, the International Textile Group and the International Coal Group.

But Now --

Billionaire investor Wilbur Ross is taking aim at another beleaguered industry: Subprime Mortgage Lenders <-------- Click For Article

Weekly Market Wrap - August 4 2007

Weekly Market Wrap




The S&P/TSX composite ended Friday down 248.38 at 13,565.24 - its lowest close since early May, after all significant sectors finished in the red. Accompanying the slumping S&P/TSX Composite was the TSX Venture Exchange, which closed down 23.28 points at 3,o81.54 and the Canadian Dollar which fell 0.1 of a cent to close at 94.83.

It was not a pleasant week for long only investors, with markets in Canada and the United States both ending in negative territory. Data points from the US included the Unemployment rate which rose to 4.5%, Employment costs were up 0.9% and Benefit costs shot up 1.3% for the second quarter, the Conference Board's Consumer Confidence Index provided some respite by climbing 7.3 points to 112.6 in July - its highest level since prior to the September 11th attacks , Construction spending dipped by 0.3% in June and the ISM Manufacturing Survey fell to 53.8 in July from 56 in June, were just a few of many disappointing pieces of news that inspired widespread selling across the board. Without being too repetitive, dismal news concerning the housing slowdown continued last week, with Bear Stearns indicating that 2 of its hedge funds that invested in securities and paper linked to the sub-prime sector were going to file for bankrutpcy while another fund has haulted redemptions. This news was followed by a credit downgrade of already battered investment bank by Standard and Poors which sunk the shares another 7%. With the economic data that came out of the US last week pointing to slower than expected growth (3.4% for 2nd quarter) for the second half of the year, investors and market participants are going to be looking for some kind of signal next week to take the market any higher or lower.

As the pressure to cut interest rates continues to build (with Jim Cramer being the latest personality to beg the Fed to cut rates- check out Video below), investors will look to the upcoming Fed meeting on Tuesday, for future direction in the markets.

Jim Rogers Video Interview - August 3 2007

Bloomberg Video

Jim Rogers Video - August 3 2007

Bloomberg Video



Jim Rogers commenting on the US markets (he suspects the US economy is in a recession right now) and the effects of the housing bubble and credit risks. Mr. Rogers also opines on the Global markets (he is still invested in China and Japan), Currencies (Mr. Rogers likes the Swiss Franc and the Yen) and Commodities (he likes water stocks and agricultural commodities) .

Click Here For The Video

Dennis Gartman Video - August 2 2007

Bloomberg Video

Mr. Gartman saying we might have seen the short term top in Crude Oil prices. He also says Gold is a reserve play but the reason it has not gone up is because it has liquidity and hence people have been selling gold amidst this recent market sell off. He is short banks ( Goldman Sachs and Bank of America) and mortgage backed securities and doesnt think the mortgage backed problems are going away any time soon. He also says that if one were to hold a gun to his head and ask him to sell something it would be Copper and that people need to own Campbell's soup and things that are quiet during these times.

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Fadel Gheit and Crude Oil - July 2007

Bloomberg Video



After hitting a new high at 78.21/barrel crude oil gave back some of its gains yesterday after the EIA report showed an increase in refinery utilization to 93.6% of capacity, a gain of 1.9% over last week. On the more bullish side, the report depicted a larger than expected decline in crude stockpiles (6.5 million barrels) but traders chose to ignore this tidbit and ring the register on some of their profits, which have been greater than 15% in the last 2 months.



Fadel Gheit, Senior Vice President for Oil and Gas Research with Oppenheimer Saying "Crude Oil Is Due For A Pullback, But Not Below $60 A Barrel".