The Daily Speculator

The "R" Word

2007-11-26T12:45:00.000-08:00

LA At Night, Wikipedia

With the S&P 500 falling one hundred points off its September high, a growing number of economists are warming up to the idea of a US based recession. The other more optimistic portion continues to place faith in an esoteric soft landing where the economy becomes sluggish, nearly stagnant, while remaining free from the grasp of an actual recession. Although this is an enticing idea in theory, emerging circumstances deem it highly unlikely. What is more realistic is the likelihood of the US's first consumer lead recession in nearly two decades.

The primary risk for our economy is the imploding housing market. Since its peak in early 2006, home builders, lenders and those directly connected to the market have felt the pain. This has lead to housing starts falling by 47% and home prices by 8% (inflation adjusted). Compared to the nearly 100% (adjusted) price appreciation seen from 2006-1997, it would appear as though the housing market has much farther to fall before we witness a true correction. Given the magnitude of unsold homes and tremendous backlog of residential construction, it becomes apparent that construction investments and prices must fall further to become rebalanced for supply.

For the housing market to affect the overall economy, its retraction must influence consumers' spending habits. Consumers spending patterns are affected by employment, financial wealth and housing wealth, just to name a few. According to The Economist, consumers are more influenced by changes in housing wealth; although it normally takes longer to materialize. "A $100 fall in financial wealth is traditionally associated with a $3-5 decline in spending. An equivalent fall in housing wealth, it seems, eventually reduces spending by between $4-9." When we take note of the wealth amassed within America's residential housing, a 10% reduction over the next few years will eventually equate to a sizable reduction in consumer spending.

This delay might be a result of the perceived value of a home by consumers. According to The Economist, "house prices are often sticky as homeowners are slow to acknowledge their houses are now worth less." Unlike the modern equities markets which reflect price changes rapidly, the price of a home is slower to react to supply and demand imbalances. Ultimately, this leaves us with a growing number of consumers realizing their housing wealth is decreasing. Even worse off are the speculators, laden with debt and dependent on continuous residential price appreciation. With the housing market in ruin, these flippers are left with mortgage calls, absentee buyers and properties they can't afford. While the housing sector has noticeably begun to unravel, its eventual effect on consumer spending habits has yet to be witnessed. Given that 70% of GDP is comprised by the consumer, a serious reduction in their spending will have profound economic reverberations.

Plants, Plastics and Profits?

2007-11-15T06:30:00.000-08:00

Image Taken From www2.unil.ch

There is a growing consensus to develop alternatives for plastics, in order to alleviate our dependency on fossil fuels and decrease our ecological footprint. If we can manufacture plastics from non-petroleum feedstock we will cut our dependency on oil and decrease our production of waste streams in one fell swoop. This is easier said than done; with current petroleum prices this is certainly not an effortless economical endeavor. However, with on-going research and potentially higher feedstock prices, the dynamics of this pendulum could shift.

Enter Metabolix Inc. (MBLX), a freshly IPO'ed biotechnology company developing alternatives to petrochemical-based plastics. In the 1980s, Metabolix's founders Oliver Peoples and Anthony Sinskey demonstrated an enzyme's ability to integrate into microscopic biofactories capable of manufacturing useful polymers such as Polyhydroxyalkanoatesas. PHA, as they are commonly referred to are "linear polyesters produced in nature by bacterial fermentation of sugar and lipids." In a controlled environment these biofactories, through photosynthesis, combine carbon dioxide,water and sunlight to create a biodegradable, renewable alternative to petro-plastic. The potential adaptations for this technology are indeed vast. Their use could range from disposable
eating utensils to orthopedic sutures and fasteners.

In 2007, Metabolix received attention after they re-announced a 50-50 joined venture to build the world's first plastic biorefinery in Clinton, Iowa. The venture, under the name Telles after the Roman goddess of the earth, is scheduled for completion in the 3rd or 4th quarter of 2008 and targeted to produce 110 million pounds of plastic resin per year. Telles plans on distributing the resin for $2.50/pound, which compares to 70 cents on the dollar for traditional plastic.

While these prices reflect a cost bias in favor of traditional plastics, the company believes customers striving for a greener persona will pay the premium. Additionally, "analysts at Jefferies & Co. see Metabolix carving out a niche in the market for disposable plastics, which is roughly 20% of the entire plastics market."

Where there is a need there is a way, and Metabolix is not alone in its undertaking to alter plastic consumption habits. Companies such as DuPont (DD), BASF (BASFY), and agricultural giant Cargill are all in the process of developing bio-based plastic resins. Most interestingly however, are the developments at a microcap company, by the name of Cereplast Inc.(CERP).

Cereplast was founded in 2001 and is engaged in the development and commercialization of bio-based resins in the United States, Europe, and Asia. Earlier this month, the company reported record revenues of $1.6 million, a 258% increase year over year. The company attributed this predominantly to the commercial launch of Cereplast Compostables. While these earnings are encouraging, the company is still in the red and continues to issue shares as a means to finance operations. Total outstanding shares for the third quarter were 258.2 compared to 200.4 million during 2006.

Cereplast's line-up consists of two proprietary products: Cereplast Compostables and Cereplast Hybrid Resins. The Compostables are slightly self-explanatory. They consist of certifiable, biodegradable plastic alternatives derived from starch-based feedstock such as potatoes, corn and wheat. The Hybrid resin is identical, except they are a neatly package 50-50 mixture of starches and petroleum. Unlike the Compostables, the Hybrids do not meet biodegradable and compostable standards in the United States and Europe. However, according to the company’s website, they are "cost competitive with traditional petroleum-based plastic resins."

The company seems to be poised for growth and has the approval by several industry leaders, including a notable, multi-year supply contract with Alcoa-Kama, a subsidiary of Alcoa (AA). Furthermore, the company claims that more than "65 prospective customers are evaluating more than 100 different potential product applications" for both the Hybrid and Compostable bioresins.

Both Metabolix and Cereplast could prove to be speculative companies worth watching in the wake of 90-dollar oil. Furthermore, with the U.S. consuming 7.5 billion barrels of oil a year and about 254 million barrels dedicated to plastics and chemical production it could prove wise to protect our planet and pocketbooks by developing these increasingly cost effective, biodegradable alternatives.

Flexable Oil

2007-11-09T14:44:00.000-08:00

Shaybah Oil Field, Saudi Arabia - New York Times

In the realm of commodities, oil is extremely unique. Unlike the precious metals or pork bellies, oil provides us with cost effective transportation, thermal energy to heat our homes, and a matrix for the creation of seemingly endless consumer products. Succinctly put, it provides our economy with the necessary lubrication to transition each day smoothly into the next. Due to this dependence, it appears that the average consumer and ExxonMobil(XOM) will remained joined at the hip. Why then, with brent crude trading in the $90 range haven't the markets thirst for oil been slaked, or the consumers appetite to spend been squelched?

In physics, elasticity is defined as the physical ability to return to an initial form or state following deformation. For economics, elasticity can be understood with a similar methodology. Price elasticity is the responsiveness of quantity demanded or supplied with respect to price changes. In other words, how likely is demand or supply for a good or service going to respond following a deformation in price.

For items such as normal and inferior goods, price fluctuations correlate to a reflected increase or decrease in the quantity demanded by consumers. These goods, such as computers and cars are considered elastic as the quantity demanded changes substantially with these pricing gyrations.

Inversely, goods such as cigarettes are largely considered inelastic. Graphically configured, inelastic demand for cigarettes would appear as a nearly vertical line on a demand curve i.e. as price increase, demand remains relatively unchanged. Some argue that this inelastic nature is skewed as nicotine is a physically addictive substance requiring progressively greater concentrations by the user which supports demand regardless of underlining price. Additionally, cigarettes remain inelastic because no readily apparent substitute exist. This further prevents consumers from switching products in response to price changes.

Computers, cigarettes and consumer staples make sense, but what about oil? How can the price of oil increase 500% in a decade without dramatically stifling demand? Odiously to some extend, oil must be inelastic. However, to accurately determine the effect of price on demand for oil, price must be correlated with time. Throughout recent history, oil has demonstrated instances of inelasticity and bouts of elasticity as during the 1970s-80s oil shocks. The importance here is not so much price, but price with respect to time.

Oil as Elastic

"From 1980 to 1981, the price of oil went from $11 to $35 per barrel. World oil consumption fell from a 1979 high of 51 million barrels per day to less than 45 million in 1985." Prices rose rapidly, and demand was squelched. During this move consumers were shocked by a 1 year, >100% price undulation. Consumers were unable to adjust personal lifestyles rapidly enough to compensate for the price increase. Additionally, suppliers were unable to subsidize refining capacity with alternative sources such as biofuels or new oil streams.

As a result of the 1980-81 shock, demand was suppressed. The elasticity of oil can also work in reverse as we saw during the 1990s. Decreased consumption in the 1980s and an increased in non-OPEC production from 15 million barrels in 1977 to 24 million in 1985 resulted in price stability in the range of $18-20. This depression of price encouraged many Americans to purchase gas-greedy SUVs during the 1990s economic expansion.

Oil as Inelastic

Even with a greater than 500% increase from 1996 to 2007, oil is still relatively cheap. According to economist Nigel Gault at Global Insight, "at $3 a gallon, it costs Americans only about 4 percent of their disposable income." With these prices, the consumer is capable of absorbing the price differential. More so, the consumer has had sufficient time to adjust life styles accordingly. Until now oil's upward accent has had limited effects on the average consumer. During the third quarter the economy logged its best performance in over a year and a half as the gross domestic product expanded 3.9%. This slow but deliberate progression has allowed consumers to buy more energy efficient cars, upgrade home heating systems and yes, even car pool. We are paying more for gas than we were a year ago, but we are able to do so with out significantly altering our spending patterns.

There however could be an inflection point. Eventually, either through price shocks, the emergence of alternatives or even a recession, demand for oil could decrease. Until that point, demand and prices remain high as the EIA expects consumption to grow by 14 million barrels per day from 2004 to 2015.

I am reminded of an experience just last week, where I actually had to wait at the pump for biodiesel. This scenario had never happened to me, and in retrospect it dawned on me. All of these consumers are waiting for biodiesel; not to be green, or to support our farmers, but simply because it is now selling at a discount to petrodiesel.

Biofuels and Avation?

2007-11-06T06:27:00.001-08:00

Refueling in Flight, New York Times

As of last Monday, the race is officially on to test fly the world’s first commercial airliner powered by biofuels. Yes, you read the aforementioned sentence correctly. The ever creative and bipedal primate known as homo sapien is at it again. This time, we will attempt to fly an aircraft powered with refined plant matter 30,000 feet into the air. In theory, these turbines, traditionally run on jet fuel, can burn most types of compressed fuel such as diesel, hydrogen and methane. The moment of Zen however, won't be achieved until we take these theories and apply them practically.

During a press conference on Monday, Virgin Chairman, Sir Richard Branson announced intentions to test fly a Boeing (BA) 747 fueled by biofuels his Virgin Group was currently developing. Branson, a stanch activist for global warming, formed Virgin Fuels in late 2006 by investing US$400 million over three years for renewable energy initiatives.
Virgin and its development partners, Boeing and General Electric (GE) have targeted the test flight for early next year.

However, Branson is not alone. In September of this year, Air New Zealand announced an agreement with Boeing and Rolls-Royce Group Plc to test-fly their own commercial aircraft. The consortium intends to mix kerosene and an unspecified bio-fuel in order to power one of the four engines. The flight is set for late 2008 or early 2009, according to the BBC.

Seemingly unbeknown to flashy Bronson or the environmentally friendly Air New Zealand, a rather microscopic startup company by the name of Green Flight International and its equally tiny partner Biodiesel Solutions achieved notoriety when they successfully completed an "experimental test flight in an L-29 aircraft powered by B100," or 100% bio-diesel.

The two pilots, Carol Sugars and Douglas Rodante flew the Czechoslovakia jet out of Reno, Nevada, gradually blending ever increasing concentrations of bio-diesel until 100% utilization. According to the press release the green flight attained performance levels comparable to those achieved with traditional jet fuel and reached an altitude of 17,000 feet!

Green Flight International was founded in 2006 by Rodante, "to serve as a platform for future development in the use of renewable fuels in aviation and other sectors." Furthermore, the company anticipates the announcement of additional "record-breaking" events shortly.

These developments within the private sector come after record oil prices and announcements by the United States Air force to "certify the entire fleet by 2010 with a 50-50 mix," or even mixture of petroleum and synthetic fuel. According to the New York Times, the Air Force burned "3.2 billion gallons of aviation fuel in fiscal 2005, or 52.5 percent of all fossil fuel used by the government." These dynamics have made aviation an increasingly costly undertaking. Since securing safe and cost-effective sources of energy is of strategic importance to our national security, it has now become attractive to explore alternative resources for our jet fuel consumption, even if commercial use is some years away.

Disclosure: The author has no position in any of the aforementioned companies.

The Google Glow

2007-11-02T18:40:00.000-07:00

On Thursday, a consortium led by Google(GOOG) launched an initiative to create a list of standards which would encourage open source programmers to develop software for Google's social networking site Orkut.com. In addition to Orkut, Google’s platform, OpenSocial, is said to be compatible across all of the member’s websites, including Friendster, LinkedIn, hi5, Plaxo, and Ning. The move is believed to be in response to a similar initiative by Facebook last spring, which lead to the development of 5,000 smaller programs capable of integration into individual users’ pages. Popular programs such as RockYou and iLike provide users additional customization within their individual page. Essentially, you get a "Subway sandwich" effect: Your site built with your specifications, hold the onions.

Since News Corp’s(NWS) $480 million dollar acquisition of Myspace in 2005, significant attention has been given to these social networking sites. Google’s own Orkut has a loyal following in Brazil and Asia, but has yet to generate much interest from American net-workers. Google hopes the addition of these smaller programs will have a remunerative effect on the site. As of August 2007 Google estimated a following of 67,000,000 users strong.

Driven by curiosity, I attempted to set up my own account with Orkut to see what type of social networking could be had in the greater Seattle metropolitan area. Using my Gmail account I was able to gain access to the site almost instantaneously. Due to time constraints, I was only able to perform a limited survey of the site. A user search for ‘Seattle, WA’ produced an abundance of single, 20-something males utilizing catch phrases and obnoxious quips such as, “single and ready to mingle” to spark interest from visitors. Comparing this to my previous experiences on Myspace and Facebook, it was apparent that Google’s site needed some new life. Jokes aside, Orkut sits at the tenth largest traffic-ranking spot on a global level. Additional, Vic Gundotra an executive at Google believes this enhancement rich software will perpetuate Internet traffic, enhance advertising, and in turn benefit Google.

Google's initiative comes a week after Microsoft announced a $240 million, 1.6% investment in Facebook. According to the New York Times, the deal values Facebook at an absurd $15 billion. Given that the company is projected to bring in $150 million in revenues this year, it becomes transparent that Microsoft might have paid a 'slight' premium. Although comparable to Orkut’s 67,000,000, Facebook's 50 million user base boosts an additional 200,000 members daily.

While this move shows desperation on the part of Microsoft, it reaffirms the importance of these social networking sites. For Orkut to gain additional market share in the US, it will need to distinguish itself among the competition. Google’s ability to differentiate itself from the competition has been its strong point. From strengthening its search algorithms and incorporating digital satellite imagery into mapping, Google was able to distinguish itself from established leaders such as Yahoo.com (YHOO) and Mapquest. By greatly enhancing existing services and products, Google was able to establish significant brand equity for themselves. For Google, the problem with Orkut may not be with its interface, accessibility nor design, but more so with its defunct, quasi association with Google. Perhaps the time has come for an Orkut name change?

Aramco Insider: Oil Structural Ceiling Reached

2007-10-30T11:12:00.001-07:00

Production curve as predicted by depletion analysts

Many speculators, myself included, love to analyze Peak Oil or the plateauing and decline of global oil production. The problem however, with determining global Peak Oil has long been convoluted due to the inherent elusively of Saudi Arabia. Unlike the publicly traded oil conglomerates such as Exxon Mobil(XOM), BP plc(BP) or Total(TOT), Saudi Aramco isn't bound by full disclosure. Since Saudi Arabia has the world's largest proven reserves and Saudi Aramco is the world's largest oil producer, the theoretical peaking of Saudi Arabia could indicate the world’s peak.

For those unfamiliar with Peak Oil, it is the inevitable peaking of any given oil well, or the point of maximum production and subsequent decline. This theory was first presented in 1956 by an American geophysist, Marrion King Hubbert. His theory was initially scoffed at, but has since received notoriety as he accurately predicted the United States' 1970 peak.

Despite King's genius, experts are still divided on the validity of a global peak. Some argue that improved technology and greater exploration can prevent it, but the undeniable fact remains that the world's most technologically advanced nation, the United States has been unable to prevent it's own peak. With this premises it seems unlikely that the less developed world will be exempt from a similar fate. Still other, more optimistic critics argue that oil is somehow a renewable resource.

This week during an interview, former head of exploration and production at Saudi Aramco, Sadad al-Huseini disclosed that, "oil production had reached a structural ceiling and that the technical floor for the oil price will rise by $12 annually for the next 4 to 5 years as new fields become increasingly costly to exploit." According to al-Huseini, "the technical floor - the basic cost of producing oil excluding factors such as geopolitical risk and hedge fund speculation - is currently about $70 per barrel, meaning the minimum oil price could hit $106 in 2010 and $130 by 2012. Actual crude prices, including financial market factors, could be as much as $125 by as early as 2010."

This disclosure by Sadad al-Huseini is important for many reasons. First, it marks a rare instance of blatancy from a Saudi oil insider. Second, it presents additional validity to the theory of global Peak Oil. Finally, this omission aligns with other renown advocates like Matthew Simmons. With Peak Oil, hindsight truly is 20/20. We won't know our actual peak until we see it in the rear view mirror...

Listen to the interview with Sadad al-Huseini

(Problems noted with Quick Time)

After a Hiatus, the Diesel Commuter is Back

2007-10-29T06:09:00.000-07:00

2006 Jetta TDI

No longer are the Prius and it's eco friendly associates the only fuel-efficient vehicles on America's streets and interstates. Long a major staple of European transportation, the compact diesel commuter is making inroads to a highway near you. Traditionally, diesels have been synonymous with large trunks and smelly, noisy Mercedes Benz. Unlike most stereotypes, this association has proven remarkably accurate. When fuel prices soared in the past, automobiles such as the Volkswagen Rabbit, and General Motors's(GM) Oldsmobile and ever iconic Cadillac models, were seen efficiently cruising commuters to and from their destinations. While these relics are now largely retired and or scraped, there is a new breed of quiet, super efficient, cleaner burning diesels emerging.

Volkswagen(VOW.DE), a trendsetter and respected innovator of diesel technology, has seen great success with its highly acclaimed Turbo Diesel Injected(TDI) engine. Originally appearing in 1989, within the Audi 100, this reliable and fuel-efficient engine recreated the idea of a diesel commuter car. Furthermore, it destroys the negative connotations and stereotypes associated with diesels of the past. I should note here, that I am writing from real world experience, as I personally own one of these cleaner burning TDIs.

Unfortunately, these stylish, spacious and fuel-efficient vehicles have been discontinued until 2008 due to tightening emission standards. Currently, only 45 states have approved the sale of these vehicles, but VW has announced that the TDI will return in 2008; freshly minted with improved emission and compliant with all 50 states’ requirements.

The Engine

The primary reason consumers have chosen diesels over the standard gasoline engine is due to superior fuel economy. Case in point, my 2006 TDI Jetta(manual) achieves 40 and 50 mpg compared to the 21 and 29 mpg attained by VW's 2.0L gasoline counterpart. This is achieved by two methods. First, the inherent British Thermal Unit(BTU) content of diesel is much greater than that of gasoline. Essentially, this means there is more energy content per unit measured. Secondly, diesel combust fuel in a much different manner. Unlike gasoline, diesel engines compress air within their cylinders. Once the point of maximum pressure is achieved, fuel is injected and instantly combusts with the highly compressed air. Since these engines are higher pressure systems, they must be built to endure the additional stress. This is the reason we are still privy to 30-year-old VW rabbits and seemingly paleolithic diesel Mercedes Benz.

Emissions

Like all hydrocarbon combustors, these contemporary diesels produce carbon dioxide and associated smog creating pollutants. However, due to the superior fuel economy inherent to these diesels, on a direct mile-to-mile comparison they emit much less carbon dioxide. If this is true, then why are existing diesels only permitted to be sold in 45 of the 50 states?

As diesel burns it creates particulate matter(PM) such as soot and aerosols as well as nitrogen oxides(NOx), which cause the formation of ozone and other fine particles. Due to stringent EPA emission regulations(PDF) from the 1980s, the tolerable level of these byproducts has greatly decrease and it set to decrease further again with 2007-2010 legislation. The dynamic however changes if diesel commuters use biodiesel in their engines. According to the National Renewable Energy Laboratory(PDF), use of B100(100% biodiesel) cuts NOx by 10% and PM by 48%. Furthermore, diesel engines and their superior fuel efficiency contribute fractionally to carbon dioxide, the major gas attributed to global warming.

The Industry

Unfortunately for General Motors(GM) and Ford(F), it appears as though the US automakers are once again behind the curve. According to CNN, neither Ford nor GM have plans to sell SUV or diesel passenger cars again in the US. The companies claim, the endeavor "wouldn't be cost-effective, because existing diesel cars sold in Europe aren't sold within the US and the current US market is too small for additional development." As for the rest of the industry, everyone from Honda, Volkswagen, Mercedes Benz to BMW are either selling or planning on selling diesel passenger cars and SUVs. Even the often-marginalized Korean auto firm Hyundai has plans to introduce an SUV to the US by 2010.

For GM this inability to adapt is all to reminiscent of its hybrid debacle. Since 2003, Toyota's(TM) Prius has set record year over year sales. At the same time, GM continued to endorse it's higher margin vehicles such as trucks and Hummers. Now, 7 years since the first Prius rolled off the lot, GM finally has its own hybrid lineup. Unfortunately for GM, their plans to introduce hybrids might be futile because while marketing my say 'hybrid', consumers may hear 'Prius'. GM's plan to avoid the diesel car market could prove to be yet another disappointing milestone in this manufacturer's withering legacy. We will have to wait to see if and when GM responds its competitors inevitable success within this new market. The moral of this story? Recognize a shifting paradigm before it drives over you.

Disclosure: The author has no position in any of the aforementioned companies.

Microvision's Seemingly Obvious Collaborator

2007-10-23T09:21:00.000-07:00

Today MVIS, a company I have covered before, announced another development agreement with yet another undisclosed Asian consumer electronics manufacturer. Under this agreement, MVIS and it's manufacturing partner "will integrate the PicoP^TM display engine into fully functional stand-alone projector prototypes." These projector prototypes will then be targeted to consumer electronics companies for "private labeling and distribution for mobile applications including mobile phones and other devices."

What is different regarding this announcement however, is the seemingly blatant verbiage contained within the press release. According to the release, the manufacture is "one of the world’s largest consumer electronics manufacturer of mobile phones, digital cameras and personal media players." By market share the five largest manufacturers of cell phones are as follows: Nokia, Motorola, Samsung, SonyEricsson and LG, with the last three being Asian manufacturers. Of these three, all manufacture and distribute personal media players. However, of the three only two manufacture digital cameras, leaving two possible candidates: SonyEricsson and Samsung. Technically speaking, LG does sell digital cameras, but none that exist independent of a host mobile phone. Due to the press releases’ attention to three distinct categories: mobile phones, personal media players and digital cameras, LG's technicality as a digital camera manufacturer seems to exclude it from the group.

Of the two remaining contenders, SonyEricsson and Samsung, only one of these companies has a prominent link and conjoined video referencing MVIS technology on their website, thus identifying the more likely suitor: SonyEricsson. With respect to the connections listed above, it would seem as though this current non-disclosure contract isn't quite as secretive as it is made out to be. More importantly however, is the significance of a development agreement with SonyEricsson or any of the aforementioned companies. Given that this most recent partnership is with one of the worlds largest consumer electronics manufacturers, it not only provide further credibility for Microvision's technology, but it also accelerates the commercialization of Microvision's PicoP.
Disclosure: The author owns shares and call options in MVIS.

Sizing Up the Next Generation of Aviation

2007-10-19T06:46:00.001-07:00

Boeing 787 vs. Airbus A380

This week marks the advent of a very important milestone for Airbus, as it signifies the delivery of its very first A380 jumbo jet to Singapore Airlines. Loaded with over 80,000 gallons of fuel, an estimated range of 8000 nautical miles and a potential passenger capacity of 800, the A380 could theoretically average 80 mpg per person, assuming maximum capacity. Compared to the 45 mpg my 2006 TDI Volkswagen achieves transportating me to and from work, the A380 seems to reign supreme with regards to fuel efficiency. For the accomplished executives at Airbus, this statistic appears to be a chief selling point for the behemoth flying craft. While Airbus' latest achievement most certainty replaces rival Boeing's(BA) 747, does it really accomplish anything more than retire an already obsolete aircraft?

Problems

For Airbus, developing the A380 has been a tumultuous journey. For starters, this initial delivery is a casual two years behind scheduled. While the engineering complexities of this undertaking surpass my intellectual capabilities, Airbus's problems seem more deeply rooted than pure technical issues. During the past two years, the European aerospace manufacturer has cycled through 5 CEOs and has plans to eliminate 10,000 jobs over the next four years. The complications and subsequent delays have literally cost the firm billions of dollars in lost revenue. FedEx has canceled an order for 10 A380's and instead chose Boeing's(BA) smaller 777. Two additional firms, Virgin and UPS have also placed their orders on hold until at least 2013. Even with this first successful delivery, CEO Thomas Enders concluded that, "Increasing A380 production to meet demand remains Airbus' greatest challenge for the next years."

For BA, Airbus' problems have been a godsend as the 787 Dreamliner has a 5-year lead ahead of Airbus' A350 XWB, which has succumb to multiple redesigns and subsequent delays. To put it in perspective, BA has 50 customers for its 787 compared to a the 16 for Airbus' superjumbo. While BA does have the lead over Airbus it is however not devoid of set backs as the company recently disclosed a 6 month delay for the first delivery of its 787.

Where the A380 fails, the Dreamliner shines. Unlike the massive A380, the nimble 787 is capable of landing in nearly every major city. This allows for direct flights and avoids the hassle of hub transfers. Boeing's craft is also highly fuel efficient. With an estimated range of 3,050 nautical miles, a 33, 500 gallon fuel tank and a passenger capacity of 330, the 787 is calculated to achieve 20% greater fuel economy compared to similar size aircrafts. Boeing achieved this superior efficiency through the use of new materials, next generation engines and increased electrification, according to the Green Car Congress.

Does It Really Matter?

Even if Airbus is able to deliver to its existing customers how many additional orders can it realistically obtain? Does the demand exist for a football stadium capable of flying from New York to London? With oil trading in the high $85 per barrel range, and jet fuel commanding the highest variable cost per flight, airliners might be forced to choose fuel efficacy and functionality over luxury in order to remain competitive.

As I mentioned before, at capacity the A380 boost considerable fuel efficacy, but will carriers really attempt to pile 800 economy passengers into one vessel? And if so, how will already condensed economy passengers react to the multiple plane changes required to get them to their final destination? In Singapore's case, the airline equipped their A380 with 399 economy seats, 60 business class and 12 suites. With these numbers the A380's impressive estimated fuel economy drops significantly to 47 mpg per person. This reduction in fuel economy will most certainly have to be recouped with ticket premiums. According to the AP, the going rate for the inaugural Singapore to Sydney luxury suite will cost around $7,160 per ticket, which is a 20-35% premium over standard business class.

The world has seen its share of aviation giants long before the advent of this superjumbo. From the three story, 6-engine Dornier Do-X, to Howard Hughes' infamous 1947 "Spruce Goose", the world has hyped and eventually retired the majority of these flying leviathans. Only BA's 747 was capable of transcending the curse of these flying titans, but even the illustrious 747 has seen its career slowly dissolve, to make way for more fuel efficient replacements like 777. At this point, only time will predict if Airbus' A380 will survive the stigma these flying giants.

Disclosure: The author has no position in any of the aforementioned companies.

Update GST

2007-10-18T08:05:00.000-07:00

Added additional shares to our GST holdings today at $1.60.

Natural Gas Gaining Momentum

2007-10-17T20:13:00.000-07:00

NG daily time frame

Natural gas continues to gain traction today following a gap through the 200 DMA several days prior. Concerning our junior natural gas driller GST, the stock as well seems to have broken out of its month long basing period. Todays 10% movement represents a >10 than fold volume surge. This move isn't quite that startling with all the conspicuous accumulation by institutional investors during the last quarter.

GST daily time frame

Update GST

2007-10-15T13:49:00.000-07:00

I added more GST today at $1.45.

BP - Big Potential?

2007-10-15T00:33:00.000-07:00

Oil and gas giant BP plc.(BP) is staged to release 3rd quarter earnings on October 23rd. As previously disclosed by the company's freshly instated CEO, Tony Hayward, earnings should be nothing short of dreadful. Furthermore, Hayward reiterate that BP's results would be the worst financial performance since the 1992-1993 time frame. To many this should come as odd since crude oil continues to hit new highs, but for BP, making money in the arena of $80 oil isn't quite so easy. BP has endured a slew of mismanagement and financial problems ranging from tightening
margins, falling natural gas prices, overlapping management, refinery explosions and environmental issues. Making matters worse were the politically distasteful homosexual meanderings of ousted CEO Lord Browne.

To investors, the end result is a company severally lagging its peers. Amongst all of this turmoil however, could be a remarkable buying opportunity. With 'dreadful' earnings to be released shortly, and fresh management at the helm, A BP turn around could be as close as next year for this conglomerate. This is of course subject to change if the faltering giant is unable to deliver its newly purposed restructuring plan.

Underperformance

A significant portion of BP's troubles have been associated with delays regarding two of its largest projects. BP's largest project, the Thunder Horse is currently the worlds largest semi-submursed oil rig. Originally delivered in 2004, this $1 billion rig sustained marked damages during the 2005 hurricane season as well as recurrent equipment malfunctions. The result was a mega project with costly delays. Unfortunately for BP, at peak production this facility is targeted to produce 250,000 barrels of oil per day(bpd) and 200 million cubic feet of natural gas on a daily basis. According to the company's latest estimates, Thunder Horse should regain production near the end of 2008.

BP's Atlantis is yet another massive project inflicted with project delays and seemingly all to common technical difficulties. Until the completion of Thunder Horse, this 200,000 bpd project will command the title of largest oil producer in the Gulf of Mexico. The Atlantis is set for commercial production starting December of this fiscal 2007. Upon completion, these two facilities should add significantly to BP's production capacity and in theory contribute directly to the top line. BP controls 56 and 75 percent of the Atlantis and Thunder Horse projects, respectively.

Toppled Thunder Horse 2005

Image Problems

Of all the integrate oil giants, from ExxonMobil to Chevron, BP is the least in touch with its roots. After all this is the very same oil company who shockingly renamed the company Beyond Petroleum. While my inner environmentalist enjoys this in theory, BP has had its share of egregious safety and environmental violations. Yet another problem is the striking resemblance between two of BP's most recent snafus.

In May of this year a US congressional committee concluded that, "severe pressures for cost-cutting," were the cause of BP's March 2006 Prudhoe Bay spill which leaked nearly 6,500 barrels into the Alaskan wilderness. The event further tainted BP's credibility and cost the giant $250 million in maintenance costs as 16 miles of deteriorating pipeline were replaced.

For BP, this spill came shortly after a 2005 refinery explosion which cost 15 individuals their lives. This event, which BP largely attributes to worker negligence and miscalculations seems all too similar to the Alaskan oil spill, where cost cutting and inappropriate investments lead to the eventual explosion. Chief executive officer of the US Chemical Safety Board informed the US congressional committee that, "virtually all" of the Prudhoe Bay misjudgments correlated strongly to the refinery disaster.

The Aftermath

So where does this leave us? BP's 1-year performance pails in comparison to an industry which has reaped the benefits of increasingly expensive crude oil. Due to BP's missteps during the same period, the conglomerate has largely not participated on the impressive run these producers have enjoyed. If the consensus of expensive oil continues and BP is actually capable of delivering its revised business restructuring, then we could be looking at an undervalued company, when compared to its peers. Judging from the streets reaction to Friday's restructuring plan, BP seems well on its way to amending its current operational issues.

BP 2006-2007 chart

La Niña, a Potential Benefit ?

2007-10-12T06:53:00.001-07:00

The NOAA issued a forward guidance earlier this month regarding the development of a mild-moderate La Niña formation occurring in the central Pacific Ocean. La Niñas often occur shortly after a preceding El Niño. This was the case during the 1997-1998 El Niño and again this year as the most current La Niña comes on the coattails of an El Niño which began in the fall of 2006. According to the NOAA, these tropical pacific formations typically last 12-18 months and can accurately be predicted 6 months in advance.

According to the NOAA, El Niño episodes occur roughly every four-to-five years. El Niños are characterized by increased precipitation and warmer-than-normal pacific sea surface temperatures along the equator. These increased temperatures correlate to drier fall and winter conditions in the U.S Pacific Northwest and a wetter-than-normal winters along the Gulf Coast states and in central and south California if the El Niño is particularly strong.

Interestingly, the effects of a La Niña are nearly complete opposites to that of an El Niño. La Niñas equate to wetter conditions in the pacific west and southwest as well as drier winter weather in the Southeast. Additionally, La Niñas typically alter ambient temperatures around the United States. This is defined by above average temperatures throughout the continental states, with the exclusion of the Pacific Northwest, which is expected to experience colder conditions. The intensity of these climate changes correlate to the amplitude of their respective La Ninas/El Niños. Since the NOAA expects a historically weaker formation this year, this could lessen the over all climate impacts felt by the United States. That being said, weather formations and the prediction of their effects are highly variable and subsequent to frequent amendments.

Economic Impacts

The impacts of La Niñas and El Niños on our economy are diverse and dependent on the strength of the correlating formation. As with virtually all economic stimuli there are expected winners and losers. Variations in weather patterns such as increased precipitation in the Northwest could lead to enhanced hydro-electric recovery as previous El Niño/La Niñas have risen reservoirs by as much as 30%. Since hydro-electricity is derived from the potential energy stored in a column of fluid, the greater the stored reserves the greater the potential for energy generation. More importantly, this La Niña could improve the fragile tug-o-war for water in the Corn Belt as agriculture and residential users compete for this scarce resource.

Cēterīs pāribus, this most recent La Niña could prove to be a minor blip on the emerging trend of water scarcity and ever increasing demand. Agricultural needs the precious commodity to grown the food we eat as well as the food we burn. As the ethanol industry continues to grow so does its demand for water; Precious water to nourish the energy intensive crop and wash water to process the ethanol. It is estimated that a 50 million gallon per year facility will require upwards of 300 million gallons annually. Corn harvests and the ethanol producers such as VSE and ADM which depend on them could temporarily benefit if this most recent La Niña can provide the rain that the parched corn belt, desperately requires.

Update GST

2007-10-11T19:22:00.000-07:00

I initiated a position in Gastar(GST) for $1.49 today. GST is a junior natural gas driller with significant backing from natural gas giant Chesapeake Energy Corp(CHK).

Naturally not Participating

2007-10-08T21:16:00.000-07:00

The global commodities boom is something of a wonderment. The fledgling economies of Asia, India, Brazil and Russia continue to feed off of each others prosperity. As these economies grow so does their demand for raw materials such as copper, cement and oil. The result is an incredibly strong demand for resources of the likes, which haven't been seen since the post World War II infrastructure build-out in the United States. Due to this demand, commodities such as gold and oil are nearing multi-decade highs. Inversely, natural gas prices sit at painfully low levels compared to their post Katrina and Rita peaks. This lack of participation beckons me to scout natural gas producers for potential value buys.

These pricing extremes reiterate natural gases' inherent volatility. With natural gas storage at 5-year highs, the rational for price depression becomes transparent. Natural gas prices cannot rally until the supply and demand equation once again becomes skewed. The question is, what could cause natural gas prices to rise?

There are three readily apparent scenarios which could cause natural gas prices to spike: 1)Reduction in output from drillers and producers, 2)Supply shocks for competing commodities and 3)Potential natural gas demand/supply shocks.

Reduction in Supply

Several natural gas producers such as Chesapeake Energy Corp.(CHK) and Questar Corp.(STR) have already announced plans to scale back production as a method of price stabilization. The concern here is that additional production reductions could result in political upheaval. This was seen recently when ill-informed Connecticut Gov. M. Jodi Rell's made accusations that CHK was attempting to manipulate natural gas futures.

CHK's Chairman and CEO Aubrey McClendon succinctly pointed out that, "no US law requires any producer or manufacturer in America to produce a product at a prescribed level, especially if selling such a product could result in the risk of an economic loss." While McClendon is accurate, the likelihood of a significant reduction in natural gas production seems unlikely.

Related Commodity Demand/Supply Shocks

In the United States, the bulk of domestic electricity generation comes from sources such as coal, hydro-electric and nuclear. Since natural gas has a higher relative fuel cost compared to these alternatives, it is often used as the proverbial bench-warmer. During periods of high demand or supply shocks, natural gas based electricity generation is used to recoup differentials brought about by these disruptions. This is primarily due to the intrinsic flexibility of natural gas compared to the alternatives such as coal.

During the 1990s, extensive droughts experienced in the west caused steep declines in hydroelectric generation. As a result, hydroelectric production declined 40% from 1997 to 2001(PDF). This reduction was largely offset by a 30% increase in natural gas generation.

Natural Gas Demand/Supply Shocks

This brings us to my final point. The largest mover of natural gas prices is in fact natural gas demand/supply shocks. During late 2005, Hurricane Katrina and Rita collectively shut down 800 billion cubic feet(Bcf) or natural gas(PDF). To put it into perspective, this is equivalent to nearly 25% of the total annualized natural gas production from the Federal Gulf of Mexico. This supply shock was precisely the reason why natural gas moved from just over $6.00 per million BTU(MMBtu) to $15 (MMBtu).

With September over, the likelihood of a hurricane educed catastrophic occurring this year is rather remote. What could occur however, is a colder than expected winter. While I will refrain from using our friendly, yet remarkably inaccurate weather man as a gage for my speculations, I will point out that natural gas appears fairly undervalued when compared to 5-year trends. This could signify an attractive entry point for such prized natural gas drillers as CHK or XTO Energy(XTO).

Potential Natural Gas Companies

2007-10-04T20:46:00.000-07:00

With winter rapidly approaching and natural gas currently underperforming virtually all other commodity classes, I have begun to evaluate several natural gas companies as potential value buys. I will have more on this later, but I wanted to take the time to post some preliminary charts.

CHK Weekly Chart

NGAS Daily Chart

GST Daily Chart

Role Model Needed

2007-10-02T06:42:00.000-07:00

Update NBF

2007-09-26T06:39:00.000-07:00

Added more NBF today for $2.64.

NRG's Nuclear Energy?

2007-09-24T18:57:00.000-07:00

NRG Energy Inc.(NRG), announced plans late Monday of intentions to build and commission a nuclear reactor in Bay City, Texas. NRG's completed construction and operating license submission would mark the first application the government has processed since 1979. With Constellation Energy Group's partially filed application and several anticipated requests from Dominion Resources Inc. and others, NRG's proposed reactor could signify an inflection point for our aging nuclear energy industry.

This move comes in the wake of rising concerns over greenhouse gases, surging energy demand and improving favorable economics of nuclear energy generation. Even with the significant capital costs required, nuclear energy's average of 1.72 cents/kWh edges out the 2.37 and 6.75 cents required for coal and natural gas facilities, respectively.

NRG estimates the plant to be commissioned during fiscal 2014, however with increased concerns over safety and a 42 month government review, the process could take much longer. Needless to say, If NRG succeeds and commissions this 2 million home reactor, the implications for the company and the burgeoning US nuclear industry will be huge.

The Need to Innovate

2007-09-20T12:16:00.001-07:00

Recent economic data revealed the U.S. trade deficit at nearly $711 billion, down from the $758.5 billion recorded in 2006. While these numbers indicate improvements, historic records have continued to be broken, with 2006 marking the fifth consecutive year of fresh highs. This emergent trend should be a primary concern as economic imbalances widen between the haves and the have-nots. Oil and industry rich countries such as Saudi Arabia and China, must export surpluses as their inventories expands. Inversely, oil and industry poor(er) countries such as the U.S. and Britain must import the gap between the country's supply and the needed demand. These imbalances have become increasingly skewed as domestic supplies of petroleum have peaked, simultaneously with strong internal demand. This imbalance of supply and demand is met by importing more of the commodity from Canada, Saudi Arabia and Venezuela. Complicating the situation is Asia's emergence as the iconic global manufacturer of goods. To put it in perspective, "The United States' trade deficit with China climbed last year to $233 billion, the highest ever recorded with a single country."

This problem is a global issue, however the real economic drain will be felt by the have-nots as their capital is literally siphoned into the economic pool of the the haves. Case in point, every U.S. dollar spent to import oil from Saudi Arabia is a dollar less spent generating economic growth at home. The Federal Reserve chairman, Ben Beranke suggested that the, "United States and other countries must work together to right a skewed pattern of trade and investment around the globe, a move that would help worldwide economic stability."

Realistically, this idea of global teamwork as a method of correcting trade imbalances seems borderline myopic optimism. Do we really expect China to increase its already surging domestic budget and scale back their exports as a means of decreasing their trade surplus? Perhaps, but even if this is the case, what about our end of the agreement? Is it possible for the U.S. to export more and rely less on imports? This seems highly unlikely given our emergence as a service based economy.

This seemingly natural trend towards a service based economy stems from increasing economic efficiencies of supply chains, outsourcing and e-commerce. All of these advances have enabled us to develop higher end goods and services in the U.S. while outsourcing low cost production. Problems can arise as the service economy faces increasing competition from increasingly educated global competitors. While the current military and economic clout of the U.S. is impressive, our once massive technological lead has narrowed as our competition strives for educational and economic prosperity.

Leader of the Pack

There was a time when big research hubs such as AT&T Bell Labs(T), IBM(IBM) and Xerox's Palo Alto Research Center dominated the field of discovery. These massive laboratories existed as each giant corporation controlled their respective industry. The enormous cost of running these think tanks was a small price to pay to insure industry dominance. Alcatel-Lucent once boosted a research roster of 25,000, a number which dwarfs the $115 million budget and 1,000 man roster recorded in 2003.

Part of this downsizing can be attributed to the sheer quantity of sophisticated knowledge acquired over the past 30 years. According to Technology.gov, a site controlled by a branch of the Department of Commerce, "It has been estimated that 90% of all scientific knowledge has been generated over the last 30 years, by about 90% of all scientists and engineers who have ever lived." While this statistic is awe inspiring, it should come as no surprise to your average consumer who has enjoyed such technological advancements as the A-trak, compact disks or Apple's(AAPL) latest spectacle, the iPhone.

Even though the giant research laboratories of the past are mostly a distant memory, American firms still command impressive R&D expenditures. According to The Economist, our domestic firms spend nearly $200 billion annually, mostly focused on computing and communications. Microsoft(MSFT), Intel(INTC) and IBM for example, recorded over $6 billion during fiscal 2006, with Hewlett-Packard(HPQ) and Cisco Systems(CSCO) racking up $4 billion. Primarily, these funds were used for making incremental improvements on existing designs in order to get new products to the market fast. This is due to increasing levels of complexity. As we advance the energy and innovation required for such undertakings increases. The Human Genome Project, arguably one of our greatest achievements, required the participation of multiple countries and nearly 10 years to complete.

Interestingly, mass adoption of new technologies seems to be increasing as well. According to Technology.gov, The automobile took nearly 55 years before 25% of the U.S. population owned cars. Electricity 46 years. Telephones 35 years, televisions 26 years, and computers 15. Cell phones and the Internet accelerated even faster, taking only 13 and 7 years, respectively. Together these two trends appear to indicate society's strengthening appetite for increasingly more complex technology. No wonder AAPL followers were willing to pay $699 dollars for the iPhone. The point here is technology is simultaneously becoming more valuable and complex.

The Lead That Was?

America's pre-eminence with education and technology could be waning. According to technology.gov, the U.S. in the 1970s accounted for nearly 70% of total worldwide R&D, while 30 years later we only commanded 44%. This shift in power may seem benign upon first glance, but the implications are far more important. The U.S. is no longer the only player in town. Aspiring scientist and engineers(S&E) now have many more selection as to where they want to learn, live and perform research. The educational upgrades made by India and China in the 1990s are beginning to mature to full fruition. India, a country nearly devoid of exploitable resources has seen its economy grow substantially over the past 10 years. The reason? India made sound investments and was able to 'harvest' the intelligence of their citizens.

Even more startling has been the Chinese's ability to grow their S&E expertise. Traditional technology vendors are no longer simply selling products into the Chinese market, they are literally moving in. Microsoft, IBM, Siemens AG(SI) and Hewlett-Packard have all set up R&D branches in China, employing 100s of individuals working to develop next generation technologies. That being said, it should have been no surprise when the PCAST reported the U.S. graduating only 59,500 engineers compared to China's 219,600 last year. Even more disappointing was a 1999 Third International Math & Science Study, which ranked U.S. students in grades K-12 19th and 18th out of 38 nations in math and science, respectively. Without educated and excited youth, who will replace our population of aging scientist and engineers?

Why Continued Innovation Matters

The foundation for America's economic strength has always been our uncanny ability to innovation and create. These two traits coupled with a free market capital system has enable American entrepreneurs and innovators to unlock and commercialize a vast spectrum of technologies, engineering processes and advanced forms of health care. The culminated effects of these advancements has placed us on the forefront of economic fortitude, military power and global prestige.

According to the Public Policy Institute of California, during the 1990s, "Existing companies in Silicon Valley cut 121,000 jobs, while companies started after 1990 created 259,000 jobs." This example of economic expansion unequivocally correlates to U.S. institutions capitalizing on the mass acceptance of the Internet and its associated amenities. As I mentioned before, America's position in the realm of R&D is unmatched by any world power, but the disparity is narrowing. Even though the U.S. spends more than any other country on R&D investments, our growth rate has averaged nearly 1 percent per year in real terms since 2000, according to manufacturingcentral.org. As the complexity and energy costs of future innovations increases, our ability to compete globally will not be measured by our previous achievements, but by our willingness to make the necessary investments today.

Update NBF

2007-09-18T06:40:00.000-07:00

Added more NBF today for $2.65.

Update NBF

2007-09-14T06:48:00.000-07:00

Added more NBF today at $2.62.

"Our pool didn't have a waterfall."

2007-09-10T20:22:00.000-07:00

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Update NBF

2007-09-07T12:30:00.000-07:00

Added more NBF at $2.64. Click here for previous post.

The Master Swing Trader

2007-09-04T20:45:00.000-07:00

Alan Farley's, The Master Swing Trader provides the quintessential technical analysis bible for those speculators interested in capitalizing on short term volatility. The book presents a concise and clear road map for navigating the financial charts. Not only does the author present essentially every step in the process of identifying and capitalizing on opportune chart formations, but he also instills the importance of trial and error as well as the realization that accurate charting doesn't always coincide with profits.

Farley's book isn't for everyone though. The book assumes most readers have a basic to somewhat moderate understanding of the financial markets. While these assumptions are there, the book is formulated in such a fashion that even a beginner can struggle through the opening chapters and upon completion have a fairly refined rendition of charting analysis.

This is possible due to compounding sequencing, which Farley does so well. Each consecutive chapter builds onto its self and the chapters that follow. Information ranging from trend relativity to Bollinger Bands are explained in immaculate detail and then in sequential chapters expanded upon and incorporated into new material. Part of this sequential incorporating can be attributed to the very nature of technical charting. The core tools are learned and then applied to varying circumstances. While this is the case, Farley's writing ability should by no means be underscored.

Another important trait of Farley's book is his concern with self discipline and patience. Trading the financial markets is exceedingly difficult. The task becomes all the more arduous when one decreases the holding period. This is precisely why the majority of investors who make money trading equities hold their positions over a longer duration. Farley's knows this and he makes it apparent through his writing. He encourages and reminds traders that profiting from short term volatility is a life long process. A process which often times, "...presents the most difficult challenge of their lives."

Farley's book maybe a presentation in eloquent charting analysis, but it is so much more. He portrays chart interpretation in a way which truly includes the human element. Understanding moving averages and trendlines is actually a method of quantifying human psychology. One must remember that each 1 minute stock tick and every daily candle stick is created and mitigated by two of our most poignant emotions, greed and fear.

Ethanol's Sweeter Side

2007-08-24T08:42:00.001-07:00

Brazilian ethanol giant, Cosan(CZZ) recently debuted on Wall Street with little enthusiasm from investors. The company ultimately raised $1 billion of the sought after $2 billion. Wall Street's apparent cold shoulder could be attributed to bearish sentiment regarding ethanol, concerns over broader market weakness or even the company's predisposition to focus on its tried an true "projects" rather than technological innovation. What ever the reason for the less than stellar IPO performance, CZZ, the worlds second largest ethanol producer deserves a deeper evaluation.

Unlike the agricultural giant Archer Daniels Midland(ADM), CZZ distills its ethanol from energy rich sugar cane. Like corn based ethanol, this type of ethanol production is based off an aged technology which was implemented on a commercial scale during Brazil's "Pro Alchol" program in the 1970s. Even though the technology is dated, CZZ still operates a surprisingly economically attractive business model. So economical, that during a particularly strong harvest year CZZ can export ethanol to the United States even with the $.54 per gallon tariff! So why if both ADM and CZZ use comparable technology can CZZ operate completely independent of government incentives? The answer lies in the acronym EROEI, more specifically Energy Returned On Energy Invested.

According to the fundamental laws of Energetics and physics, EROEI is the ratio of the usable energy acquired from the expenditure of another energy resource. For example, the production of ethanol yields an energy balance of 1.3 to 1, or 1.3 units of corn ethanol produced for every unit of oil/diesel/coal. I should note that there is some dissemination concerning corn ethanol's true EROEI. For the sake of simplicity, attention should be focused on the superior yields of sugar cane as apposed to dwelling on the exact EROEI of corn. One can read more about this issue here.

According to recent publications in the New York Times, the currently accepted EROEI of sugar cane is 8.3 to 1, or nearly 8 times that of corn based ethanol production! Some researchers even argue that energy yields of 10 to 1 are a real possibility within a few years time. The question is why does sugar cane yield such an attractive energy balance?

As a feed stock, sugar cane has two significant advantages compared to corn ethanol. The first advantage is concerned with cogeneration or the simultaneous production of an end product as well as the energy required to run the plant. Sugar cane bagasse is the remaining biomass after the sugar cane juice(ethanol feedstock) has been extracted. In Brazil the vast majority of ethanol producers burn the bagasse as energy for their plants, effectively creating a CO2 neutral energy source. The burning of bagasse is deemed CO2 neutral, because the CO2 expelled during the burning is equal to the CO2 consumed by the plant during its life. When one compares the alternative of burning dirty coal to produce ethanol from corn, it is no wonder why so many are optimistic of sugar cane's potential. The other advantage is corn requires the transformation from a carbohydrate to a sugar prior to fermentation. Since sugar cane is in fact a sugar this step is unnecessary.

Before we generate excessive excitement we must remember that oil still boost a higher EROEI than even sugar cane, at 10 to 1. That being said, the bonanza of ultra cheap petroleum extraction in the 1950s, yielding an EROEI of nearly 100 to 1 is all but a distant memory. More interesting is oil's nearly vertical energy decline since then. According to www.energybulletin.net, the EROEI fell to 25 to 1 in 1970, and now stands at about 10 to 1 today. "This is because the size of the oil fields is shrinking, the depth at which oil is being found is growing deeper, and the quality of the oil that is being pumped is decreasing."

For me, further due diligence on CZZ is needed before I take the leap as an actual shareholder. After a preliminary analysis though, I do like the prospects of the company. Cosan most certainly shouldn't be complacently grouped with the major US ethanol producers. This type of generalization unfairly overlooks it's significant economical advantage of proper feed stock selection. Furthermore we must remember that unlike ADM or VeraSun(VSE), Cosan has operated profitably without government incentives for over a decade.

Back from New York

2007-08-23T12:47:00.000-07:00

I am finally back from my excursions in NYC. It was a much needed vacation, but it feels great to be back in Seattle. I look forward to a return to normalcy, hopefully with some insightful posts to follow. During my break I did some slight portfolio tweaking, specifically cycling my MVIS September $5.00 call options into actual shares as well as adding more NBF today for $2.82.

Update IMAX NBF

2007-08-10T09:25:00.001-07:00

IMAX earnings were out yesterday and they were less than stellar. Big surprise there! It appears as though my $5.00 August call options will expire worthless next week. I also added substantially to my holdings of NBF at $2.99. The company now comprises greater than >50% of my total portfolio assets. So much for diversification? I will also be in New York next week, so updates and posting will most likely be non-existent until after I return.

IMAX Update

2007-08-08T19:07:00.000-07:00

As you may or may not know, IMAX is scheduled to report second quarter 2007 earnings tomorrow morning at 8:30 eastern time. To the best of my ability I can't identify any reason why IMAX should beat earnings tomorrow, aside from the impressive theatrical runs of 300, Spiderman III and most recently Harry Potter and the Order of the Phoenix. While these results are beneficial, IMAX's true revenue generating streams come from the actual signing of of theater installs. Due to the company's recently announced alteration in theater install revenue recognition, and massive theater backlog, it is exceedingly difficult to calculate install revenue.

Questionable revenue timing aside, IMAX's options activity was quite interesting today. As you can see in the schematic below, nearly 800 $5.00 August call options traded hands. This may seem small compared to the option activity seen in large equities such as Cisco or ExxonMobil, but today's volume effectively double the entire open interest volume(1,261) in one day of trading! Many investors and traders believe that abnormal or higher option activity can allude to events to come. With minuscule August $5.00 put option volume at 226, one could believe that good news is just around the corner. Earnings anyone?

PEMEX Reports Oil Depletion in 7 Years

2007-08-03T08:56:00.000-07:00

Recently PEMEX, Mexico's largest integrated oil producer informed the United States that, "Supplies of its economically exploitable resource are running out." The company estimated proven reserves near 9 billion barrels in December of 2005. With current production near 1.3 billion, and demand stable; simple division extrapolates 7 years as the target depletion date.

PEMEX has long suffered from the stagnation of decreasing exploration investments as the company has been an exhausted cash cow of the Mexican government. According to the article, experts from the PFC Energy Advisory company in Washington estimated that in the event of heavy investment, new fields could take nearly 8 years for full maturation. Even with this optimistic view, "Mexico may have to import oil to satisfy its internal market." Jesus Reyes, director of PEMEX attributed the current state of affairs to declining capacity in Cantarell, Mexico's largest oil field.

Given that Cantarell is one of the world largest oil fields, with its discovery in 1976, exploitation in 1981 and peaking in 2004, this development could mark a startling corollary when compared to other elephant fields, notably the Ghawar field in Saudi Arabia.

For the energy intensive United States, this marks a chief concern as Mexico is our third largest importer at an estimated 1,469,000 barrels of crude daily. If and when Mexico does become a net importer of crude, the United States would require this differential to be recouped either internally or through the aid of existing importers. The question is where will this excess capacity come from?

Update IMAX

2007-08-02T19:49:00.000-07:00

IMAX continues to oscillate between tests of previous highs and lows. It is important during this action that we continue appreciating higher volume on the upside as well as consolidation on weaker volume. This indicates the bulls are more aggressive than the sellers, at this point. While unable to break through recent highs in the range of $5.20-$5.15, IMAX has demonstrated surprising resilience in light of recent market dynamics. If and when the market can shrug off the current financial concerns IMAX should be poised to run.

Another interesting development is concerned with the insiders, specifically a 10% holder by the name of Kevin Douglas who's recent purchases have totaled almost $2.5 million. He may not be a true insider, i.e. an individual who runs the company on a daily basis, but his recent purchases and their increasing volumes do poise interesting questions.

Economically Viable Alternative Energy?

2007-07-29T10:47:00.001-07:00

Despite my staunch belief that we do need to alleviate our dependence on fossil fuels, I cannot help but become irritated with the incessant din streaming from the mouths of farmers, greenies and congressmen alike. You can't escape it, so why don't we all stop trying. From television commercials, to corporate branding and our elected puppets, everyone is deputizing alternative energy and more specifically biofuels as the be all and end all to our energy dilemma.

What many fail to realize however is the sheer immensity of this task. The amount of energy we collectively produce from fossil fuels is astronomical. At this point, instead of delving into numerical data, I would like to try a metaphor. Imagine yourself in modern day Beijing. You need to get yourself, your wife and your two kids to some remote destination 30 miles away. Now try to picture the expression on an unsuspecting rickshaw driver's face as you ask him to cart you and your family that very distance, all for a cost of $3.00.

In other words, this stuff is useful, versatile and at this point, relatively cheap. With the emerging economies of China and India posting nearly double digit year over year growth, energy intensity, in particular demand for oil is expected to expand well into the 21st century. I could elaborate using widely accessible date, but I find this redundant since society is largely in agreement that energy demand is here to stay. I will instead, save the monotonous numerical crunching for later on in this editorial.

Now if we are in agreement on the aforementioned, we can agree that we need to identify viable alternative sources. I use the word viable here because it is so often omitted when discussing alternative energy. By viable, I mean a source that is renewable, easily integrated into existing infrastructures and most importantly; economically attractive when compared to its fossil fuel counter parts. This excludes you hydrogen and your cohort corn ethanol.

By this premise, only one fuel source comes to mind, and that is in fact biodiesel. Biodiesel refers to a diesel-equivalent manufactured from biological (renewable) sources which can be combusted in unmodified diesel vehicles. Wikipedia describes this chemical compound as: "Alkyl esters made from the transesterification of vegetable or animal fats."

Biodiesel is enticing for several reasons. First, it can be easily integrated and utilized into existing fueling infrastructures and vehicles. By vehicles, I am not referring to our average America commuter, but to the tens of millions of trucks, trains and boats which burn diesel on a daily basis. Unfortunately in the US, only around 3% of the vehicles on the road use diesel. While this is paltry compared to Europe's 50%, these numbers are expected to increase.

This brings me to my next point. Unlike ethanol, the alternative for gasoline; biodiesel and diesel boost comparable energy content at 37.8 MJ/kg and 48.1 MJ/kg, respectively. Unlike ethanol's 30% compromise in fuel efficiency, a truck powered by biodiesel will average nearly identical fuel economy compared to its diesel powered counterpart.

This brings me to my final point. Biodiesel is renewable. Some will attempt to argue that there is an endless supply of oil yet to be discovered, but the most fundamental principle of economics states there is endless demand for finite resources. While this doesn't mean we will run out of oil tomorrow or in ten years, it does indicate that as supply diminishes and demand increases oil will become more expensive.

Currently on the commercial scale, biodiesel is produced using virgin plant oils. While this is great in theory the numbers aren't as enticing. What would happen to these producers if the $1.00 per gallon federal tax credit were withdrawn? More importantly, what would happen if the spot price of crude oil were to drop significantly? While these two scenarios seem unlikely given the current political environment, they do poise interesting concerns regarding biodiesel's economic viability.

Where concern dwells so too does opportunity. Theoretically, biodiesel producers could cut costs using economics of scale such as Imperium Renewables and Archer Daniels Midland are attempting to do. These companies and many more like them may in fact prove successful, but there lies an even more efficient method for drastically cutting variable costs.

Last month a micro cap, by the name of Syntroleum launched a joint venture with Tyson Foods to build and co-operate a 75 million per year refinery. This venture is exciting because they intend to use fats, greases and reclaimed vegetables oils as their primary feedstock. For producers this truly is the holy grail of biodiesel. Since the feedstock is the largest variable cost, the more inexpensive the feedstock the more profitable the producer. While SYNM and TSN are targeting 2010 as their completion date, there is in fact one biodiesel producer whose been doing this continuously at a 80,000 gallon pilot plant since 2003 and commercially since October of 2006. Before I get into the specifics of this company, I believe it is prudent to walk through the basic economics.

Given that the feed stock comprises 60-75% of the finished products cost, it becomes imperative to process the lest expensive sources. The problem is, the cheaper the feedstock, the higher the fatty free acid(FFA) content and in turn the greater the difficulty to refine.

Corn oil for example, fetches around $.30-.34 per pound with a FFA of around 1%. While this feedstock is incredibly easy to process, its usage equates to a variable cost of ($.30 x 8lb = $2.40 per gallon)(8lb = 1 gallon).

With operational costs ranging from $.42-.53 and diesel rack prices nearing $3.11, there isn't much room for profit margins or excess funds to recoup the plant's initial capital cost. However, with the current federal tax credit biodiesel producers can remain competitive if they sell the biodiesel for $3.11($2.40+.45= 2.85, $3.11-2.85+1.00= $1.20 profit per gallon).

The story is even more appealing when we cut feedstock costs. Take yellow grease for example. When the FFA exceeds >20% the cost drops to under $.15. With these prices a producer could refine biodiesel for half the cost($.15 x 8lb = $1.20+.45= $1.65, $3.11-1.65+1.00= $2.46 profit per gallon). Note: these numbers exclude the Oklahoma $.25 tax credit as well as the $.50 federal BTU sludge tax credit.

One final thought on numbers. The company which I shall mention shortly will have a combined annual capacity online by Q2 2008 of 70 million gallons. Interestingly, all of the feed stocks and refined biodiesel are already locked up in contracts signed last year. This means that as of next year they will be netting close to $172,200,000. Given the 109,998,692 shares outstanding and an industry average P/E of 9.9, the company should post an EPS of $.64 and a PPS of $6.34(9.9x.64). These numbers, although estimations indicate an extreme discount when compared to current market valuations.

As I mentioned before the company, Nova Biosource Fuels, Inc.(NBF) isn't talking about doing it they are doing it. Currently, the company is in various stages of permitting and building three refineries for their own portfolio with the capacity to process 25 various feed stocks into biodiesel which meet and exceeds ASTM D 6751 standards.

Why do I believe this company will succeed? Aside from the hurdles of finding funding and pioneering new technology, I look to management. Who is running the company and why? When concerning quality, NBF boosts one of the most impressive micro cap management lineups I have ever seen. Interestingly, they are all high caliber ex-oil men originating from the likes of Texaco, Halliburton Energy Services, Vanco Energy, Mobil Exploration, and Kerr-McGee Chemical.

The next question is why? Why are all of these ex-oil executives and presidents running a $300 million micro cap start-up? Basic speculation brings me to a logical answer. Big oil is in the business of making money. They have been 'banking coin' for years and they will continue to do so for many more to come. So to answer my question, the real reason these men choose NBF, is they know its technology enables them to produce biodiesel and do so economically.

Disclosure: The author owns shares of NBF.

Update NBF

2007-07-27T12:28:00.000-07:00

I was able to complete yesterday's order today at $2.76 today. I also added more at $2.68. More on this topic later on in the weekend.

Update NBF

2007-07-26T18:57:00.000-07:00

I would like to extend a warm thank you and a big thumbs-up, to the market maker and/or investor who sold me 3 shares of NBF at $2.84 today! After all what is could be more rewarding than placing an order in for 300 shares and only receiving 3? Lets see here, 3 x $2.84 = $8.52 + $7.00 for commission. Yep, that was the most cost effective $15.52 I have ever spent. Thanks!!

Update MVIS

2007-07-24T18:29:00.000-07:00

In case you didn't see this yet at Reuters, here it is. From today's developments it would appear that we are going higher. Hopefully, I will have more regarding this during the weekend.

Microvision Shares Hit Year-High After Motorola Pact

By Purwa Khandelwal

Microvision Inc. (MVIS), a developer of high-resolution displays and imaging systems, on Tuesday announced a deal with Motorola Inc. (MOT) to make tiny laser-based projectors for cellphones, sending its shares to a year-high.

Microvision said the two companies will work together initially to integrate its PicoP projector inside a functioning mobile device for demonstration purposes.

The technology is expected to enable a "big screen" viewing experience from mobile devices by projecting the content onto a wall, object or even a curved surface.

"Our goal is to have an accessory device in the market in late 2008 and an embedded device by 2009," company spokesman Jeff Wilson said by phone.

He, however, did not say whether the company would have an embedded projector or a separate accessory, which could be used with PDAs and cellphones, in its deal with Motorola.

Wilson also added that the company was in talks with other large cellphone and consumer electronic companies, but declined to provide specific details.

"This technology has a great deal of potential," Canaccord Adams analyst Jonathan Dorsheimer said by phone.

"Because the technology is enticing to the automotive market for a safety feature known as heads-up display, they (Microvision) have formed a partnership with Visteon."

He added that Microvision has also signed a deal with another tier 1 automotive parts supplier, but said the company did not disclose the name. Redmond, Washington-based Microvision's shares were up more than 12 percent at $5.45 in afternoon trade on the Nasdaq, after hitting a year-high of $6.08.

Update IMAX

2007-07-23T06:37:00.000-07:00

It amazes me just how quickly market sentiment can change! This morning IMAX was upgraded to a buy from hold by Merriman Curhan Ford. Analyst Eric Wold argues that, "Once Imax reported fourth quarter and first quarter results, the focus would return to the company's fundamentals -- signings, installations, and box office -- all of which have remained strong."

In response, IMAX proceeded to gap higher through the $5.00 resistance level and run as high as $5.18 in early morning trading. As this story continues to develop, those 5.5 million shorts should really begin to feel pressured to cover. Realistically, shares could run as high as $5.30-40 before overhead supply is really felt. Although, as long as there are plenty of fresh longs available to absorb this supply, IMAX could conceivably run even higher.

IMAX - A Side Note

2007-07-22T10:42:00.000-07:00

In my post on Friday I neglected to mention that IMAX is heavily loaded with 5.5 million shares sold short or nearly 16% of the float. With IMAX's average volume of 300,00, it will take over 18 days for these shorts to cover.

Update IMAX

2007-07-20T06:34:00.000-07:00

Finally, IMAX filed its 2006 and first quarter 2007 results. The stock had been languishing despite posting record box office results due to strength from 300, Spider Man 3 and Harry Potter. With these financial uncertainties largely out of the way, IMAX appears poised to run. In early trading the stock gapped up some 9% to $4.80.

Below are some choice highlights. Heed special attention to the theater signings from the 1st and 2nd quarter of 2007. These are numbers important not only because they are some of IMAX's highest grossing revenue streams, but also because they expand IMAX's foot print i.e. the greater the number of theaters IMAX opens the greater the revenue from IMAX's digitally remastered movies. Essentially, the more theaters IMAX has the more cost effective it is for IMAX to convert Hollywood's blockbusters into the 70 mm format.

Update LTN

2007-07-19T06:32:00.000-07:00

My Limited Brands Inc. $25.00 put options expire worthless today for a loss of 100%.

"I'm really impressed by your honesty."

2007-07-18T06:54:00.001-07:00

Update MVIS

2007-07-17T08:01:00.000-07:00

Sold my MVIS August $5.00 call options at $.35 for a 35% loss.

Update IMAX MVIS

2007-07-16T18:37:00.000-07:00

IMAX continues to demonstrate strong consolidation, with three candle sticks printed firmly on the 200 DMA. Today the stock showed some strength as it attempted to test its highs from last Tuesday, near the range of $4.65. While it was unable to break to new highs, the stock did close in a rather perfect cup & handle formation closing exactly on the 50 DMA at $4.55.

Many technicians will argue that the cup & handle is reserved solely for longer time frames spanning weeks or months, but even during the shorter 10 minute chart the supply and demand dynamics are identical.

For conformation we still need a high volume break through resistance at $4.60-70. This could occur tomorrow during an opening gap up, or with a long candle stick which closes above $4.60. A possible catalyst could be stellar HP results which were released late in after hours. Although, for the stock to really move the company needs to file its tardy financials.

As for MVIS all I can say is the ascending triangle formation is still in place. However, today's action makes me slightly apprehensive that we might get a failed formation. Time will tell.

Update IMAX

2007-07-16T10:45:00.000-07:00

Breakout! Added more to my IMAX August $5.00 call options at $.25. More later.

Improving Technicals at MVIS

2007-07-14T11:39:00.000-07:00

As many of you know, MVIS is one of my two largest holdings, encompassing nearly half of all portfolio assets. While this subjects me to increased risk and volatility as MVIS has a reputation of wild price movements, it also has rewarded since MVIS has printed a clear and undeniable uptrend since its lows from October 2006.

More recently MVIS created a new 52 week high at $5.90, before plummeting 22% to find support at the level of $4.60. This level of support lined up perfectly with the rising 50 DMA as well as our previous highs in April. As a uptrend progresses, it becomes increasingly important to find support at previous highs. This indicates an uptrend which, is in fact stable.

As evident in my chart, MVIS has done just that. Each sequential high has subsequently acted as support during each of MVIS's retracements. A perfect example of this was the $3.50 high made in November 2006 acting as support during MVIS's retracement from its January high of $4.08.

All this historical information is important, but what does it indicate regarding future price movement? While technical information can generate false signals, one can increase the odds of higher probabilities by systematically aligning multiple charting time frames.

Below the daily time frame, the next shorter duration would be the 60 minute spectrum. Interestingly, for MVIS this time frame prints a perfect Ascending Triangle, which is a bullish continuation pattern. The methodology behind this formation is rather simple to understand.

A stock will become range bound with firm resistance being placed at an establish ceiling. In the case of MVIS, resistance is firmly entrenching at $5.00, which also coincides with a psychological whole number barrier. Buyers continually push prices higher only to be met by selling at this level of resistance. The importance here is the series of higher lows. This indicates that, although the sellers are currently in control they are losing strength as the buyers establish support at higher and higher levels. Each sequential test of resistance increased the probability of it being broke. Thus the more tests, the greater the likelihood of a breakout. Ultimately, conformation is given when buyers push the equity through resistance with an increased level of participation(volume).

Conformation here would(will) come in the form of a higher volume break out above $5.00. If(when) this occurs, I believe MVIS can conceivably run to the level of $5.40

Update MVIS

2007-07-13T12:49:00.000-07:00

Initiated a position in the MVIS August $5.00 call options. More on this later.

Update IMAX

2007-07-13T06:46:00.000-07:00

IMAX continues to consolidate on low volume. On the daily time frame we are resting on the previously broken 200 DMA at $4.42. On the 10 minute chart we are range bound between $4.45 and $4.50. After a strong move higher, subsequent consolidation at support is most often appreciated prior to a sequential move higher. Although it should be noted that a range bound stock can not only break out, but also break down. A break below $4.45 on higher volume would be a sell signal, where as a break over $4.50 on higher volume would be a buy signal.

Update NBF

2007-07-12T12:13:00.001-07:00

Added more NBF at $2.96.

Update IMAX

2007-07-11T12:46:00.000-07:00

I added substantially to my IMAX $5.00 August call options today at $.30. This trade has the potential to devastate me or reward me quite handsomely. I will have more on this later tonight.

Can Harry Work His Magic on IMAX?

2007-07-10T22:31:00.000-07:00

IMAX Corp. is a technology company which specializes in larger than life films based on its 70mm film format. The company has been growing rapidly as it continues to ink theater deals. The reason for this is partly because of the company's increasingly attractive technology in this age of inexpensive high definition television and surround sound. Simply put, one can not recreate the IMAX experience in their home. It's just not possible to find a 88 foot high definition TV.

From a economic perspective IMAX theaters are a gold mine. We see this clearly if we compare the per screen numerical average of a standard theater vs. an IMAX theater. Spider Man 3, for example estimated $35,540 and $57,000 for a standard and an IMAX theater respectively. It's no wonder why some analysts estimate that China's IMAX screen count is supposed to triple to 26 before 2011.

The question is why have shares languished some 50% from their September 2006 highs? While I hate to cast blame, I feel obligated to in this situation. I could understand one CEO waffling the job of running a multi-national, but two? Is that even possible? How can two CEOs, both receiving hansom six figure salaries run a company so poorly? This is where I become confused, but I will leave it at that. Through a series of mismanagement, delinquent filings and mountains of back dated theater installments; shareholders find themselves irritated and broke. While I don't own any shares personally and only purchased call options today, I can't help but feel as irate as the shareholder who bought last May. It's almost as though management is trying to sink their own ship(Weren't they trying to sell the co. last year?). If anything the technology is the only thing keeping this drift wood afloat, for companies such as Sony and Time Warner continue to choose IMAX as the preferred method for releasing their blockbusters.

Once again we find ourselves on the cusp of yet another slam dunk flick as Harry Potter and the Order of the Phoenix is due for release today. IMAX shares responded accordingly today as they powered through their 200 DMA on x2 average daily volume. Despite the nearly 9% move today, shares could still run farther if the company actually files their fiscal 2006 and 2007 10-K in a timely fashion. However, with managements track record er lack thereof, maybe we shouldn't be so naive...again.

Update IMAX

2007-07-10T13:46:00.000-07:00

I bought some IMAX August $5.00 call options for $.35 today. More on this later tonight.

Update MVIS HNR

2007-07-10T06:45:00.000-07:00

I sold my July $12.50 HNR call options today for a 7% loss. Also MVIS looks strong here resting at support, remaining slightly positive while the majority of the market tanks.

Update ADM HNR

2007-07-09T07:18:00.000-07:00

I sold my ADM July $35.00 call options at $1.20 for a 180% gain. I also bought some Harvest Natural Resources Inc.(HNR) July $12.50 call options for $.65. This is an independent oil and gas exploration company with reserves primary located in Venezuela. You can read about the fundamentals here.

The Oil Factor

2007-07-07T12:38:00.001-07:00

Over the last 20 years, author Stephen Leeb has created quite the reputation for himself, as an innovating predecessor of changing economic paradigms. His previous books include a 1986 (Getting in on the Ground Floor) novel foretelling the great technology bull market of the 1990s as well as a staunch warning of the impending technology collapse in his 1999 book, Defying the Market.

In his 2004 book, The Oil Factor, Leeb returned to the limelight with an unprecedented prediction of soring energy prices. Three years later we now appreciate the full maturation of his predictions. While these projections were not all that startling, the true gravity of the situation is. At the time, a simple analysis of demand side economics would have revealed the pressures on energy prices as wealthy Americans adopted the use of sports utility vehicles and the emerging economies of China, India and Russia required a greater energy intensity. Given the low prices at the time, simple deduction would conclude an increase in energy prices.

While the issues of rising energy prices seems rudimentary from the vantage point of a neophyte, the ramifications are not so basic. The book does an astounding job of factually revealing current supply and demand dynamics, while demonstrating the future consequences for investors.

Of the various chapters in the book, chapter 2 "Our Amazing Oil Indicator," remains one of the most intriguing and useful. Since all economies demand energy for economic output, Leeb and his associates devised a method for comparing and contrasting rising oil prices with S&P performance. First, they evaluated oil prices from 1973 to 2003. Finally, they notated S&P 500 index performance during the same time frame. In Leeb's words, "The results were staggering. When oil rose by 100 percent or more over a twelve-month period, stocks during the next eighteen months experienced an average maximum monthly decline of 27 percent." The basic premise here is, as oil moves higher the market moves lower.

The question is, with oil prices up significantly, how come the market is reaching new highs? I have my speculations such as strength in the energy, and natural resource sector as well as the resilience of the American consumer. While more though needs to be put into this, one word does come to mind, unsustainable.

In conclusion, The Oil Factor is a must read for every investor wanting to protect their investments in the emerging world of scarce and expensive energy.

Update NBF DVR

2007-07-06T12:50:00.000-07:00

First off, I added more to my long term holdings of NBF for $3.04. I found a great article in Biodiesel Magazine discussing Nova's technology and the impending completion of the Sanimax Biorefinery.

Secondly, I closed out my DVR July $17.50 call options for a 16% gain. I really wanted to hold these contracts longer, but I was forced to close due to the nonexistent liquidity of these contracts. Due to this, the contracts oscillated wildly over the last month often times neglecting to reflect the accurate time value of the contracts.

Basically there was a point when the contract was worth $.10 despite DVR trading at $17.60 with over a month before expiration. I love trading options, but with out proper liquidity they will often times trade sporadically not accurately reflecting the true value of the contract i.e. intrinsic value + time value.

Finally, with over half the year behind us I am up 23.2% thus far.

Update ADM DVR

2007-07-06T09:18:00.000-07:00

DVR 60 min chart - 6 weeks

ADM 60 min chart - 4 weeks

Seemingly, both of these stocks are breaking out over previous highs, with DVR moving to a new 52-week high and ADM breaking out of its previous 3 week trading range. Most likely, this is an extension of the current oil rally coupled with DVR's undervalued fundamentals. Some caution should be noted as ADM is moving towards its 200 DMA as well as resistance in the $34.90 range.

Update PEIX ADM

2007-07-05T19:17:00.000-07:00

I sold the remainder of my July $12.50 PEIX call options at $2.05 for a 215% gain today. I also bought more July $35.00 ADM call options for $.40 and $.45. ADM looks poised for yet another move higher. Apparently someone wanted those July $35.00 ADM call options today as 13,995 contracts exchanged hands. Stay tuned.

Update ADM

2007-07-05T07:05:00.000-07:00

Bought some July $35.00 ADM call options for $.55.

Hey Ken

2007-07-05T07:01:00.000-07:00

Update PEIX

2007-07-05T06:51:00.001-07:00

PEIX gaps higher with volume. I was originally concerned with possible resistance at the 50 DMA. This is apparently a non issue as PEIX proceeded to gap through this level on significant volume.

Previous close: $13.62
50 DMA: $13.75
Current price $14.15

Technicals Improving at ADM

2007-07-04T14:08:00.000-07:00

My recent bullish bias for ethanol producers was made evident in my post regarding AVR and PEIX. While I have sold all of my AVR July call options and half of my PEIX holdings, my bullish stance still remains for the ethanol industry.

Of the potential players within the industry, none is more dominate than Archer Daniels Midland. However, Shares have been hammered some 9% during the last three months due to deteriorating margins related to excessive ethanol supply. While PEIX, AVR and others muscled out of their down trends on June 24 after the announcement of possible favorable legislation, ADM continued to slide. This apparently changed on Monday after a Bank of America analyst upgraded ADM to a buy from neutral, citing ADM's "...range of assets capable of storing and transporting its products to far-flung places," as a means to capitalize on the swelling market for grains and seeds.

Technicals too are in an apparent reversal, as ADM gapped through its upper descending trendline on July 2nd. Despite this favorable adjustment, the 200 DMA still looms overhead at $34.97; which could provide resistance if ADM is unable to generate sufficient volume to push through this level of overhead supply.

Update PEIX

2007-07-03T19:52:00.000-07:00

Sold half of my PEIX July $12.50 call options today at $1.20 for a gain of 84.2%.

Update AVR

2007-07-03T07:05:00.000-07:00

Sold my July AVR $15.00 call options at $2.20 for a 238% gain. I am also looking to unload a portion of my PEIX July $12.50 call options prior to the holiday.

Liquid Gold

2007-07-01T21:16:00.000-07:00

The associated press released a great article today regarding Texas's plans for water desalination facilities. While I do not have the time or energy tonight to write up a full analysis regarding the significance of these events, I did pull up the chart of my favorite desalination pure play, Consolidated Water Co. Ltd.(CWCO). Technically, the company appears on the verge of a multi year breakout. Hopefully, I will have more on this topic later.

The iPhone is Here!

2007-06-29T19:32:00.001-07:00

Update AVR PEIX

2007-06-29T12:16:00.000-07:00

CBOT daily corn futures

Today corn futures continued their vertical decent. The chart above portrays major support being broken at the level of $3.70. Since the largest variable cost for ethanol producers is in fact corn, this pricing collapse bodes well for the ethanol sector, specifically those producers such as VSE who neglected to hedge their corn costs.

According to the Scientific American, nearly 93 million aces of corn were planted this spring creating the largest planting since 1944. Their is however, some concern over the possibly of an ethanol glut, which could hurt ethanol producers margins if supply outstrips demand. While this is a real possibility, one must remember that oil is now trading near $70 per/barrel making ethanol as a automotive fuel source all the more appealing.

Ethanol sector 3 month chart

Corn prices and their effects on ethanol producers profits has largely been the catalyst for the sectors multi-month pps collapse. The sentiment however could be changing as several industry leaders such as VSE, PEIX and USBE apparently broke out on above average volume last Friday after the announcement of favorable legislation.

While I am much more bullish on cellulosic ethanol as apposed to its energy intensive corn based cousin, these recent developments make the ethanol industry an attractive buy at their current undervalued levels.

60 minute PEIX chart

Book Reviews and Investing

2007-06-28T14:10:00.000-07:00

Starting shortly I will begin including book reviews as a regularly scheduled addendum to the Speculator. As perpetual students of the markets it is essential for investors to continually refresh our perspectives regarding the medium in which we trade. The reason for this is quite simple. The financial markets are dynamic and ever changing. This is made keenly apparent if one views the ebb and flow of a trending market. Even in a readily apparent bull market, surges and counter movements are expected. These movements and reactions are also apparent within the global economy as supply and demand imbalances oscillate between extremes, agitating prices along the way. As investors it is much to easy to remain stuck in the past as we dwell on our previous inadequacies and rudimentary trading mistakes. While the past does hold wisdom from experience, it is this and nothing more. Learn from one's missteps, and practice precision more precisely in the present.

I mention the present as apposed to the future, because traders often make the mistake of actively trying to predict the future. This is yet another inappropriate way to view trading. While some traders have proving track records of accurately predicting the future, the vast majority of us will fail if we believe we can develop a talent to read the signs of the time. Instead of trying to predict future price movement, it is more appropriate to, "Look at the future as unknowable in specifics but foreseeable in characters."(Faith 48). Essentially, we must look at the future not in terms of prediction, but in terms of probabilities.

One method, if not the best method of improving accuracy is to constantly read and learn from experienced traders and investors. Whether we are reading Warren Buffet's personal favorite The Intelligent Investor or a more contemporary piece such as The Master Swing Trader, it is imperative for us as students to continually thirst for knowledge.

Faith, Curtis M. Way of the Turtle. New York: McGraw-Hill, 2007.

Update MVIS

2007-06-27T01:13:00.001-07:00

Finally back from my short vacation. Hopefully, I will be able to devote more time towards my investing. Just did some initial charting tonight on MVIS partly because of the higher volume sell off. I don't know the reason for the move(warrant conversion?), nor do I really care due to my rock solid beliefs in the long term viability of this company. I will however say that the technicals have just got a whole lot more bearish. Despite the now tarnish chart, the fundamental story has now improved. The question is can longs handle Microvision moving in directions besides straight up?

BTW: During my post yesterday regarding PEIX I neglected to mention that I purchased the July $12.50 call options for $.65.

Update PEIX

2007-06-25T11:46:00.000-07:00

I bought some July $12.50 PEIX calls. I have been on vacation the last week and have been seriously lacking with my editorials. Once I get back I will write up a detailed explanation. Above is the 5 day chart of the dominate ethanol stocks. PEIX seems to be holding its gains stronger than any other pure play. More on this later.

Update ADM AVR

2007-06-22T13:20:00.000-07:00

I closed out my ADM September $30.00 put options at $.55, for a gain of 37.5%. Basically this transaction covered taxes and fees, essentially creating neutral trade. Late in the day I also initiated a position with Aventine Renewable Energy Holdings Inc.(AVR), by picked up some July $15.00 call options for $.65.

I am looking for continued favorable legislation next week as the House reviews the current energy Bill.

Update NBF

2007-06-21T10:47:00.000-07:00

Added more to my long term holdings of NBF today for $2.71.

Interesting Technical Formations.

2007-06-20T23:47:00.000-07:00

All three composites, the NASDAQ, the DOW and the S&P are once again poised for a picture perfect double bottom. We saw the repercussions of this formation after the early March sell off and subsequent rally. A bottom was created followed by a rally which was unable to break resistance. Finally, a second bottom was formed followed by a higher volume rally which was able to break out through resistance, pushing the markets to new heights.

While the picture my appear similar from a technical vantage point, fundamentally the story is slightly askew. Bond yields continue to creep higher, economic growth is nearly grinding to a halt and pesky inflationary pressures wont seem to let up.

The Dow 06/2007

The S&P, nearly identical.

Same story with the NASDAQ.

Cal Dive - A Surprisingly Undervalued O&G Service Company

2007-06-19T19:10:00.000-07:00

As I have mentioned before, I am quite bullish on cylicical oil and gas service companies. More specifically those with deep water Gulf of Mexico exposure. Last September, Cheveron, Devon Energy and Statoil SA reported finding potentially the largest American oil deposit in a generation. According to a New York Times article, the find could hold anywhere from 3 to 15 billion barrels of oil. The only catch is that Jack No. 2 is located some 175 miles offshore, 30,000 feet below the gulf's surface, among formations of rock and salt hundreds of feet thick. With current United States's reserves at 29 billion barrels this discovery could potentially increase our proven reserves nearly 50 percent. Although this sounds spectacular in writing, the situation is slightly more complicated.

This discovered came after nearly 2 years of drilling with the combined investments of 3 major oil companies. While this type of frontier oil drilling is possible with oil at $60 per/barrel, more exploratory drilling at record depths and pressures will be required to bring this oil the market. Even more daunting is that current US demand of 20.5 million bpd will drain this supply within two years.

Daniel Yergin, president of Cambridge Energy Research Associates noted that, Success at these depths in the Gulf of Mexico would facilitate ultra-deepwater exploration elsewhere in the world because it will have proven the technology and capabilities.

Aside from these integrated oil drillers and producers, companies set to perform well are the oil and gas service companies required to build, upgrade and repair existing and impending offshore rigs and piping.

Apparently this industry has already taken off, as evident by recent stock quotes, but due to an industry average P/E of 15.95, companies still look relatively undervalued with relation to estimated growth.

Even more appealing and apparently undervalued is Cal Dive International Inc.(DVR). As stated on the company's website: Based on the size of our fleet, we are the market leader in the diving support business, which involves services such as construction, inspection, maintenance, repair and decommissioning of offshore production and pipeline infrastructure, on the Gulf of Mexico Outer Continental Shelf, or OCS. DVR's recent acquisition of Horizon Offshore Inc. will undoubtedly strengthen their position going forward.

This company is however something of an enigma for it boost an impressive operating margin of 35% compared to the industry average of 16.6% and yet only trades at an affordable forward P/E of 10.3. Interestingly, the company is as also a subsidiary of Helix Energy Solutions Group Inc which effectively holds 61,000,000 of the company 84,000,000 outstanding shares. When one couples this with the nearly 4 million shares sold short, DVR could prove to be a highly volatile and lucrative investment as we gear up for yet another eventful hurricane season.

Going forward I plan to add to my existing July $17.50 call options holdings.

Update MVIS

2007-06-19T12:40:00.000-07:00

Sold more MVIS today at $5.68.

Update MVIS

2007-06-18T14:44:00.000-07:00

I sold a portion of my MVIS shares at $5.47 today to cover my recent December $5.00 call options(see previous post). Nothing really has changed except for my leverage. Basically I converted a portion of my shares into options contracts. This will increase my exposure to MVIS. The main difference aside from volatility is with respect to expiration dates. My shares of MVIS will not 'expire' but the options can and will expire on their specific target dates unless I activate them or sell them prior to their specific dates.

MVIS Update

2007-06-14T07:06:00.001-07:00

I bought more December $5.00 MVIS calls for $1.00 today and yesterday. To me these are by far the cheapest of the options due to the fact they are in the money and have nearly half the year left before expiration.

Reflections - Microvision 2007 ASM

2007-06-13T19:59:00.000-07:00

Microvision's annual 2007 meet was everything I expected and more. I didn't anticipate a huge turn out for this 250 million dollar micro cap. Sure they have received significant coverage as of late from the likes of The Wall Street Journal and Business Week, but to the bulk of Wall Street, Microvision Inc. is nearly transparent. This was exceedingly apparent as I signed in and received my shareholders pamphlet. Not many people in attendance. That being said, one could still sense the excitement contained within.

I started my tour at the Heads-Up Display(HUD), incidentally bypassing the RoV display completely. In its current form the HUD creates a 'laser pointer' image i.e. GPS, MPH and various logistic information is simply displayed into your field of vision in a vibrant red hue. I was told by the staff future generations will include color. The image was incredibly clear and interestingly remains in focus even if you look past it. Basically, reading and conceptualizing the information presented by HUD requires little effort on the part of the viewer. I eventually left the Heads-Up Display after the PicoP dark room caught my eye.

I walked into the dark room to find it teeming with enthused investors and engineers. It didn't take long for me to hone in on all the excitement. Centered in the room was a table with both of Microvision's prototypes PicoPs eloquently projecting crystal clear video footage of everyone's favorite Pixar fish. While the image clarity was nearly identical in the two prototypes, the latest generation, presented in wide angle WVGA resolution provided a superior viewing experience. Mind boggling to me, this all occurred in less than half a year and yet Microvision was able to maintain 1.5 W usage and nearly a 7mm package. Hmmm

Needless to say it was quite shocking seeing these projectors for the first time. I didn't really grasp it initially due to my fixated on the projection, but finally I looked down and realized just how minuscule these projectors are!

To me the speckling artifact was noticeable on both projections. However, a investor near me chimed in, "Hey nice water effect." An engineer laughed and quipped, "Actually that's an inherent artifact of the laser based scanning technology." He went on to describe the physics behind it, but I wouldn't do it justice attempting to transcribe it here. He also mentioned how they were currently working on dampening this effect by deceiving our eyes of its presence. Essentially, the artifact would remain, but we would have greater difficulty identifying it visually. Personally, the speckle effect isn't like a typical imaging artifact. Instead of distorting the image it merely creates a shimmering effect, that is if you focus on it. I found as I watched Nemo swim, the effect became less apparent as my eyes simply "looked through" the effect. In retrospect its rather difficult to qualify.

Due to time constraints I will end here. In conclusion I will say that this technology's potential is massive. Weather in the form of RoV, PicoP or HUD, Microvision's prototypes are years ahead of the nearest competitor with respect to power requirement, size, and image quality.

At this point I refuse to get into future profitability, margins etc. In time these will become an issue. Currently they are irrelevant. For now I am going to treat my investment in MVIS as a biotech investment, highly speculative with potential for astronomical gains. As long as MVIS and most importantly Tokman, continue to set and reach future mile stones, I believe shareholder appreciation will continue. On that note I will leave with several video clips from the meeting.

Comparision between January and May 2007s PicoP

Live action footage.

854x480

Yes it is THAT small.

Microvision 2007 Annual Shareholders Meeting

2007-06-12T19:38:00.000-07:00

Tomorrow June 13th. Doors open at 8:00 am with demonstrations starting at 9:00. My plan is to get some pictures and video footage from the meeting and post them here accompanied with some observations. More on this later!

Off topic- Picked up some additional shares of NBF for $2.51 today.

Update LTD NBF

2007-06-11T18:25:00.000-07:00

Today I added more to my long term holdings of NBF. The stock is in an apparent free fall, moving from $3.00 to $2.50 in a little over a week. While this kind of price movement is totally against my trader mentality, the investor in me believes the long term prospects significantly outweighs short term volatility. In my opinion NBF is a complete steal under $2.50. If price continues to deteriorate, I might be forced to use my margin buying power until I can flush my account with fresh capital.

Below is a recent publication from the Wisconsin State Journal, highlighting one of NBF's third party bio refineries, due for completion in late June.

Production at the plant, which has a capacity of 20 million gallons per year and sits on a 3-acre lot on the north side of DeForest, has been low as it tests its equipment. But Read expects the plant to produce 60,000 gallons per day by the end of June.

In other action I ended up buying some LTD July $25.00 put options today for $.40. While this puts me at odds with a recent Barron's article, I feel that short term volatility, weakening technicals and strengthening bond prices favor near term bearish sentiment.

Charting Stocks - MVIS LTD GPS ANN

2007-06-10T22:12:00.001-07:00

Posted below are some charts of stocks I will be watching this week and possibly initiating a position in. My focus was on weak equities, which are currently under performing the S&P. As I have posted before, I have been looking for weak stocks to hedge my portfolio against the possibility of a market downturn. Aside from some short options, I also included a revised weekly chart of MVIS. This stock continues to outperform on a technical basis.

The market tanks and MVIS rallys?
All I can say is wow.

Some ugly charts

Update WFR

2007-06-08T06:42:00.000-07:00

I sold my July $65.00 WFR options at $1.10 for a neutral trade.

Looking For Potential Shorts

2007-06-07T22:45:00.000-07:00

All I can say is yikes! That being said I will be looking for shorting opportunity's and quite possibly selling my WFR call options I bought today. The market is looking worrisome. Especially the increasing volume appreciated across the board. Remember volume precides price. And in an uptrend its soothing to see higher volume on accumulation days. Some possibilities might be GS and WWW.

Updates - WFR ADM MVIS

2007-06-07T18:33:00.000-07:00

For starters I sold all of my ADM July $35.00 put options at $1.90 and $1.70 for a gain of 61.9% 80.5% respectively(pre tax/fees). I will continue holding my September $30.00 put options to leverage myself towards continued ADM weakness. Currently they are nearing over sold levels and in need of a bounce.

With a portion of my profits I loaded up on some WFR July $65.00 call options for an average price of $1.10. Technically, the stock held the bottom trend line on the daily time frame. While this is important, it is even more important we appreciate a bounce in the near future in order to continue the uptrend(originating on early May).

The rest of my profits were used to buy MVIS September $7.50 calls for an average price of $.25. This is a highly speculative play, which if successfully will mark a 32% increase in share price(market close today - $5.68).

BUY WFR / SELL ADM

2007-06-07T08:59:00.000-07:00

In at $1.10 for the July $65.00 call options on WFR. Apparently, support was found at the bottom trend line. I also sold a portion of my ADM call options. More on this later.

Keeping an Eye on WFR

2007-06-06T23:07:00.000-07:00

I will be keeping an eye on WFR as a possible buying opportunity tommorow. Shares have fallen from their recent highs and have apparently found support on two different time frames. WFR could also rally due to the possibility of Cyclone Gonu threatening oil traffic in the Strait of Hormuz.

The quote below was taken from Yahoo! Finance; It referances to the strait's significance in relation to the global oil economy. My concern would be with respect to general market weakness at this point. Regardless, I will be eyeing the June $60.00 calls.

Also supporting oil futures were worries over Cyclone Gonu's approach toward the Strait of Hormuz, the world's most important crude oil tanker route. About one-fifth of the world's oil passes through the narrow waterway at the entrance to the Persian Gulf.

Below are several charts which illustrate my point. Its important to remember that support strengthens when it accumulates on multiple time frames.

Support building at the 200 MA.
(30 minute time frame)

Support appreciated at the bottom trend line.
(daily time frame)

Update ADM

2007-06-05T18:50:00.000-07:00

Apparently, ADM found near term support simultaneously at the 38% fibonacci retracement and the February 1st gap up. Regardless, the stock is still in a marked downtrend during a bull market and this guy continually rates the stock as a triple sell. While I infrequently rely in Cramers haphazard stock picking, his influence shouldn't be completely ignored. These developments lead me to believe that the support ADM found will be short lived.

Cal Dive International Inc.

2007-06-04T12:39:00.000-07:00

I bought some July $17.50 call options for Cal Diver International Inc.(DVR). I will have more reguarding this company hopefully later in the week.

Sold the remainder of my June $5.00 MVIS call options at $.60 today for a gain of 233%.

Finally, ADM gapped down in early traded today, but was able to find support at the $34.00 level. I mentioned on Friday that the stock might find some short term support at this level.

Update MVIS

2007-06-04T00:42:00.001-07:00

More to come...

Fun Friday

2007-06-01T16:44:00.000-07:00

There was a great piece out yesterday in the New York Times highlighting general market sentiment and comparing current P/E market valuations to their historical averages.

Many people want to target this market as top heavy and in dire need of a correction, but the uptrend is intact and thus should be followed. Listed below is a quote I found most interesting.

Still, many market specialists note that even with the recent run-up in the stock market, American companies are cheap compared with the past and with other world markets. The price-to-earnings ratio for companies in the S.& P. is about 18 today, compared with 32.8 in 2000 and a 21-year average of 22.5.

As for my recently purchased put options, ADM continues to under perform while the market chugs higher. Most importantly, ADM was unable to surmount the pivotal 200 DMA yesterday. Due to this development I am all the more confident with my options. It should be noted that possible support exist at $34.00.

Update ADM

2007-06-01T14:03:00.000-07:00

I purchased some ADM September $30.00 put options for $.40.

Update ADM

2007-05-31T07:02:00.000-07:00

I bought some ADM July $35.00 put options for $1.05.

Ugly Chart - ADM

2007-05-30T22:59:00.000-07:00

I have been in the process of identifying potential shorting opportunities. I don't know where the general market will be in the next several months, but we are reaching overbought levels and a pull back wouldn't be all that astounding.

My general thesis is to target weaker equities. The methodology behind this is simple. When and if the market does turn south, these under performers are more likely to continue under performing when compared to their outperforming counterparts.

One of these such companies is Archer Daniels Midland Co. (ADM), an integrated transporter, producer, and marketer of agricultural commodities. Over the last two years, ADM has received significant attention due to their position as the worlds largest ethanol producer. While I enjoy the longer term prospects of this company, the immediate future doesn't appear so promising. After the market's lack luster response to FQ3 earnings, shares continue to drudge lower.

Most recently the stock moved through the pinnacle 200 DMA, on above average volume. If this potential barrier can hold, ADM could quite possibly flirt with the bottom trendline near $33.00 per/share. While this level would make the company fundamentally undervalued, one must not ignore the buying and selling pressures depicted in the technical landscape.

Rather unimpressive daily chart.

Equally unimpressive weekly chart.

Update MVIS Sell

2007-05-30T19:19:00.000-07:00

I sold the bulk of my June $5.00 calls at $.35 and $.55 today for a gain of 75% and 233% respectively. The remainder of my June $5.00s will be held until expiration, since I am no longer playing with my money. Thanks Microvision!

As for MVIS, I am still holding my core position as well as my September $5.00s. I will also be looking for weakness so as I can buy more Septembers and possibly December $7.00s. For the sake of MVIS's long term trend I wouldn't mind seeing lower volume selling/consolidation for the rest of the week.

Charting Stocks - MVIS SU VSE & USBE

2007-05-29T23:15:00.000-07:00

Below are 4 charts which I believe could yield substantial upside, assuming mother market continues climbing higher. Like most of the market two of these stocks have performed quite nicely, while the other two are potential bottom plays. Of them I currently hold positions in only MVIS, but will be looking to add positions into one or two of the others.

First up is MVIS and its amazing chart. Need I say more? For more information click here, or here or even here. Sorry last post on MVIS, I promise?

Suncor Inc.(SU) is a company I briefly covered here. They are, in my opinion best of breed within the Canadian tar sands industry.

VeraSun Energy, Corp (VSE) is one of the many banished corn ethanol plays. Once the darlings in early 2006, pure corn ethanol companies such as VSE are viewed by many as future less. However, these this company and other are profitable and experiencing rapid growth despite shrinking margins. The market is also in rally mode and thus very few bargains are left to pick from. I believe VSE could be one of them, that is if oil prices continue to trend higher. Some of VSE's perks include their business connections with GM and Ford, and their ability to sell directly to end customers through their chain of E 85 fueling stations. To my knowledge no other ethanol producer has this ability.

US Bioenergy Corp. (USBE) is yet another beaten down corn ethanol stock. Although I know little of this company some perks include a cheaper P/E ratio compared to VSE at 11.8 and 13.9 respectively as well as having Ronland J. Fagen as a majority share holder. For those unfamiliar with Mr. Fagen, he is the founder and CEO of Fagen Inc., currently the premier engineering firm for corn ethanol facilities. His ownership could prove to be interesting.

Update MVIS - Pure Speculation?

2007-05-25T10:44:00.001-07:00

Microvision S.I.D conferance 2007

P lacing technical analysis and sound fundamentals aside, its time for some unabridged speculation. Recently, shares of Microvision contiue to move higher on technology improvements and contract agreements. While I enjoy the fact that MVIS's technology is light years ahead of the competition, I am more interested with these non-disclosure contracts. As of late MVIS seems to be completely a washed in them. The real questions are what is their importance and how can they benefit ME as a shareholder?

Importance

While these contracts don't directly effect the bottomline, they give continual support and credibility to MVIS's technology. As a shareholder invested fully in a micro cap company(MVIS), its quite soothing to have the companionship of a larger player(s).

In November of 2006 it was cute to read about how a major teir 1 automanufcture has come on board to develop Heads Up Displays with MVIS. It was nice after the major Asian customer electronics manufacture contract was announced. Well now its May 2007 and we have not one, but two tier 1's, two major customer electronic manufacturers and a complete wild card commercial transportation contract to develop MVIS technology for aerospace applications! I am sorry but, cute and nice do not give true respect to the gravity of these contracts. One word comes to mind, sexy! The fact that all of these inevitably larger companies find keen interest in MVIS's technology makes me all the more secure with my position. The latest aerospace contract is the one which intrigues me most. There aren't may players in this arena and one of Boeing Co. world headquarters happens to be located some 30 miles away from MVIS's campus. I am not saying anything...but what if?

Benefit to Shareholders

Odiously the continual signing of these contracts has boosted the share price some 200% since late last year, but I believe updates from these existing contracts could provide further price movement aside from the much anticipated OEM contract. By updates I am specifically referring to the eventual disclosure of the players involved.

Non-disclosure contracts are signed for many reasons. Simply put, companies don't want their respective names released for competitive and credibility reasons. Companies such as Sony don't want to disclose at the time of signing because the technology and the potential for commercial viability is in the infancy stages. Why tarnish Sony's good name and damage potential brand equity by partnering up with bunk technology? After a lengthy call to investor relations I came to the conclusion that non-disclosure contracts eventually disclose when the time is right. This was made evident by Visteon's disclosure some 4 months after the contract was initially signed.

Going forward I believe that we could see disclosure of MVIS's PicpP partners. Depending on the clout of these companies, the share price will respond accordingly. For longs lets hope they go big.

Update MVIS

2007-05-25T10:36:00.000-07:00

Sorry, but I had to do it...bought more September $5.00 calls for 55 cents.

Update NBF

2007-05-24T09:50:00.000-07:00

I was forced to sell some of my NBF holdings for $2.95 today. I will be taking a small loss on this transaction since I aquired them for an average of $2.99, however I need the funds for an impending MVIS pull back as well as protection against NBF's weaking technicals. Reguardless, I am still holding a core long position and will add shares on pull backs or when I get additional funds.

BUY MVIS Calls

2007-05-21T09:20:00.001-07:00

I bought more MVIS calls today. Today’s buys are for the June $5.00 contracts. My average cost is about $.18. I will have an in-depth post regarding this later tonight.

Update MVIS - Long Term Trend Evaluation

2007-05-17T17:09:00.000-07:00

For day and swing traders, chart analysis is primarily concerned with short term time frames such as the 30 minute and daily chart. The anticipated holding period dictates the various time frames required for proper analysis. With these shorter time frames, indicators will expediently signal impending trend changes. However, using these durations are much more prone to inaccuracies such as noise and whipsaws, when compared to longer durations. Essentially, we substitute accuracy for speed with sequentially smaller time frames.

For my long term holdings I use the more accurate and smooth weekly time frame for trend analysis. A great example (one which I failed to capitalize on) was appreciated during Hansen Natural Corp's(HANS) +1000% rally. Utilizing the weekly time frame and holding the stock instead of buying and selling through this multi-year rally would have resulted in monumental gains. From July of 2004 to July of 2006, HANS only once broke below the established weekly bottom trendline. Even during the November 2005 breakdown, the stock quickly regained its composure and resumed its nearly vertical climb. It was not until August of 2006 that HANS actually broke down, indicating the changeing of underlining market sentiment. It would have been at this point that longs should have exited positions and booked profits.

Aside from trendlines, there are several important indicators which work well with the weekly charting landscape. These are the Average Directional Index (ADX), Chaikin Money Flow (CMF) and moving averages (MA). These three are important because they dictate trend strength, locate accumulation vs. distribution and trend identification.

For the purposed of this analysis I will one of my long term holdings, Microvision, Inc. (MVIS) as an example. MVIS is a development stage company attempting to commercialize a miniature display and imaging engine based on its patented integrated photonics module (IPM). Observing the weekly chart, MVIS has printed a transparent up trend since August of 2006. During this uptrend the indicators(listed above) not only cross verified the trend but also strengthened during the subsequent rally.

Average Directional Index

ADX is a simple indicator which gages the strength of the underlining trend. The indicator ranges from 100 to 0, although readings above 60 and below 10 are exceedingly rare. Readings above 40 indicate a strong trend and readings below 20 indicate a weak trend(sideways trading). It is important to realize that this indicator doesn't define the trend as bullish or bearish it only dictates trend strength. According to the ADX indicator, MVIS's trend has been strengthening since October of 2006. Currently, the ADX reading is at 44, indicating an incredibly strong trend. For longs this is important since MVIS is in a clearly visualized uptrend.

Chaikin Money Flow

CMF gages the amount of buying and selling pressure by determining the daily average close relative to the high and low for a given period. For my charts I use a 20 day period. To determine accumulation and distribution, three basic observations should be noted. First, what is the value of the oscillator? With MVIS's chart, the indicator is clearly above zero and has been so since the start of the uptrend in October of 2006. Any readings above zero indicate accumulation. Second, what is the amplitude of the oscillator? The higher the reading moves above zero the higher the amplitude of the oscillator. For MVIS, CMF has been gaining in amplitude and is currently sitting at reading of positive .11. It should be noted that readings above .25 indicate strong accumulation. Finally, the duration the oscillator remains above or below zero identifies how strongly the equity is being accumulated or distributed. Aside from a minor dip below zero in early November of 2006, MVIS's CMF has remained above zero, indicating sustained accumulation.

CMF is also important when determining trend support. An uptrend is not sustainable if the stock is under heavy distribution. During instances such as this a divergence forms. The stock move higher while the indicator continues lower. Ultimately, a correction will be required. Either the share prices will have to move lower or the indicator will have to turn positive. For MVIS however, this is a non-issue. During MVIS's ascent the CMF indicator has remained positive giving the current uptrend sustainability.

Moving Averages

MAs can come in all different durations and types. Without getting too specific, MAs smooth the price action out over a specific duration. The longer the MA duration the more smooth the reading. With the weekly chart this smoothing effect is all the more pronounced. For example, the 50 and 200 weekly moving averages print the average share price over 50 and 200 weeks respectively. Since the 200 WMA gages the average share price over an extensive duration it is viewed as the most accurate determinate of long term market sentiment. Essentially, a stock trading under its 200 WMA is generally considered bearish and a stock trading above their 200 WMA is considered bullish. MVIS is in fact trading well below its 200 WMA of $5.30. A break out above this level should be viewed as very bullish and thus beneficial for longs. Another important technical alarm to hed is the golden cross, or the instance where the 50 WMA crosses above the 200 WMA. For a previous post on the golden cross click here.

Despite the simplicity of moving averages, they are important during trend evaluation. During an uptrend, moving averages will gradually move higher starting first with the shorter durations first i.e. the 10 and 20 WMA. Once the 50 and 200 WMA start to move higher, the uptrend finally obtains long term creditability. MVIS for example has made a phenomenal move since its low during August of 2006, however the 50 WMA has only recently started to move higher. If MVIS's share prices continues to move higher so to will this longer MA, further strengthening the trend.

While technical analysis is viewed by some as tea leaf reading, charts hold much truth and knowledge as they map out battles held between buyers and sellers. For a truly holistic approach to investing one should combine sound technical analysis with sufficient due diligence.

BUY MVIS Calls

2007-05-16T12:13:00.000-07:00

Bought some September $5.00 MVIS calls today for $.45. More on this later.