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Larry Cyna
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Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the... More
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CymorFund by Larry Cyna
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  • The Resource Sector Is Badly Beaten Up

    Published Every Thursday

    Resource Stocks Suffer Dramatic Losses
    The Junior Resource Market is plummeting and has been for over a year now, with recent down moves accelerating.. Most stock charts look like hockey stick handles, or downhill ski slopes. Even producing mines, established mineral deposit companies, and producing energy companies show the same type of heart wrenching downward slope in their stock prices.

    The senior resource stocks have not escaped this carnage either. Whether it be Barrick which fell from $42 to $29, or Detour which fell from $29 to $19, or Newmont which fell from $64 to $41, barely any stock in the resource sector has escaped the meltdown.

    Commodity Prices Show Surprising Strength
    Yet, commodity prices have shown remarkably stability during this entire period. Gold, although weak, was only slightly higher 1 year ago. It was slightly over $1,600 per oz; now it is slightly under $1,600 per oz. Silver was slightly under $30; now it is slightly under $28. Copper was around $3.80; now it is around $3.40.

    This is quite remarkable. What the market is telling us is that the commodities remain in demand at a more or less stable level, while the producers and creators of those commodities are regarded as relatively valueless. Doesn't this remarkable divergence seem odd to you?

    The Market is the Last Place to Look for Fair Value
    As we have remarked so many times, the stock market is a place that ebbs and flows with sentiment and with little regard for fair value. A quote from Warren Buffet is appropriate here: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren knows that emotions like hope, greed, and fear dictate stock prices rather than logic and value. When people are panicky or fearful (as in a bear market) he takes that chance to buy great companies at cheap prices.

    If you can't stand the heat, get out of the kitchen. Sell your stocks and buy Savings Bonds. But for those that take a longer term view, one has to only go back over the last 6 years. In 2006, stocks were on fire and the price of just about every piece of junk was far greater than its value. Yet investors scrambled to buy something, anything. Jump on the bandwagon and get rich.

    The market valued stocks at incredibly lofty valuations. Then came 2008, and everything crashed, Nothing had value and investors rushed for the exits. The same stock that was worth $10 in 2006-7, was unloaded at $1 in 2008, and the seller was thankful to get the $1. Once again, the market value bore zero relationship to real value. The sentiment said "Head for the Hills", and value became zero value.

    In 2009 and 2010, the same stock that was worth $1 in 2008 rose to $10 and then to much higher values. Those that did not panic, those that had nerves of steel, made truckloads of money.

    A Repeat of the Same Scenario, Again
    So here we are again. Resource stocks once again have no value. Investors fear the EU will financially disintegrate, or China will slow down, or King Kong will return. Abandon resource stocks at any price.

    Yet, commodity prices, which reflect demand in the real world, are surprisingly strong. Steel is still needed to build bridges. Oil is still needed to power engines. Copper is still needed for electrical wiring. Demand for all commodities remains robust.

    Guess What Will Happen to the Value of Resource Stocks?
    In due course, probably very soon, there will be a realization in the market (the market that ignores real value) and the price of resource stocks will do what they did the last time this sort of meltdown occurred. They will do what they did in 2009 - they will rise.

    Those that ignore this certainty will miss the train. They will buy after these stocks are valued at far more than their real value. Those with intestinal fortitude will buy when stocks are valued at stupidly low prices. History does have this habit of repeating itself - over and over again.

    We may or may not have positions in named securities. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are cautioned to do their own research and decide based on their own risk tolerances and circumstances. Commentaries contain forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied.

    The views expressed are opinions only, not investment advice. Persons investing should seek the advice of a licensed professional and should not rely on the opinions expressed herein. This report is neither a solicitation nor recommendation to buy nor sell securities. We are not a registered investment advisor nor a broker-dealer in any jurisdiction. We do not accept investment funds. The information contained herein is based on sources which we believe to be reliable but is not guaranteed to be accurate and does not purport to be a complete statement or summary of the available data.

    Apr 04 8:10 AM | Link | Comment!
  • Cyprus - Now A Shut Down Money Laundering Site, While The US Economy Roars Ahead

    CymorFund Stock Picks - What's-Hot-or-Not
    In February 2013, we started suggesting stocks that were undervalued and had a strong upside potential. Most of our early picks were in the junior resource sector, and in spite of a horrific downturn in this sector, we are proud that our picks in this very short time, have preformed very well indeed.

    Whats-Hot-or-Not - Historical Picks
    February 2, 2013 E Mini (ES - CME) June 2013 $1,496.75, or, IYY ETF (Picked @ 13,947, now 15,445)
    February 6, 2013 Tethy's Petroleum Limited (TPL-TC) (Picked @ $0.74, now $0.79)
    February 10, 2013 Scorpio Mining Corporation (SPM-TSX) (Picked @ $0.95, now $0.72)
    February 21, 2013 Medicago (MDG-TSX) (Picked @ $0.54, now $0.54)
    March 15, 2013 EMED Mining (EMD-TSX) (Picked @ $0.175, now $0.165)

    As always, patience, will prevail if there is good value.

    Cyprus
    Investors should always take the bumps in the road with the knowledge that there always will be bumps in the road. Cyprus is one of those unforeseen bumps. A tiny island, where reputed mobsters hid their money, where the banks were renowned as a safe place to hide money away from prying eyes, and where money flowed carefree. This is not an example of what will happen to the financial system elsewhere.

    This is a very special case, where the EU knew that it was a waste of money to guarantee and loan money to rescue the banks there. They let those that used this money haven, pay the price of using this haven. More than anything, it is part of the universal crackdown on money laundering and illegitimate hiding of monies obtained under suspect circumstances.

    The next time one of these situations arises, remember that the economic strength of the EU rests on its Northern members, and the Southern members joined to get the benefits, and then used that advantage with reckless abandon. The rescuers are the Northern states, who sometimes refuse to be further abused. The European Union remains strong, and is one of the keys economic powerhouses of the world.

    A Wider View
    Almost all reports out of the USA are pointed in a positive direction- housing starts are up, automobile sales are at or near records, unemployment continues to drop, bank reserves and safety continues to grow, the US $ is strengthening, and the painful ascent out of the abyss is continuing. The stock market is bumping along threatening to break historical highs, and companies have record amounts of cash on their balance sheets.

    March 3 2013 Value Investing Professor Jeremy Siegel - Stocks Are And Will Remain The Best Bet

    A quote from a guru who foresaw the 2008 meltdown. In an interview with Knowledge@Wharton, Dr. Siegel, a regular contributor to Market and Financial News, stated "Though stock market volatility continues to rattle investors' nerves, the future looks bright for equities in the U.S. and many emerging markets."

    "That's not so for bonds, which could become money-losing investments as rising interest rates drive bond prices down. Investors should think about reducing their bond holdings, buying more stocks and keeping just enough cash for a rainy day and other liquidity needs, since interest rates on cash are near zero.

    Siegel adds "With the housing market - so critical to the U.S. economy - clearly improving, anyone who has held off buying a home should think about buying now while prices and mortgage rates are low."

    Looking For Further Proof?
    How about a quote from "The Economist" Feb 23 2013
    BUSINESS people have turned bullish everywhere except eastern Europe, according to a quarterly survey of over 1,500 executives undertaken for The Economistand the Financial Times. Overall confidence, measured as the balance of respondents who think global business conditions will improve against those who expect them to get worse, rose from a dismal minus 11 percentage points in the last quarter of 2012 to plus seven in the first quarter of 2013. That pushes the barometer into positive territory for the first time since the quarterly survey began in 2011.

    Fear Attracts Readers
    Remember that live in an age of instant news, and news bites of extremely short duration except for human interest stories which drag on and on. The news media is now quite skilled at bringing every bit of hysteria to our attention immediately - it attracts interest - for a few seconds until the next item.

    Investors must take a wider view to join the crest of rising stocks, and not be left behind.

    We may or may not have positions in the securities we name. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are advised to do their own research and decide in light of their own circumstances, whether an investment is appropriate. Except for the historical information presented herein, matters discussed in this document contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements.

    The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds. This report is for information purposes only, and is neither a solicitation nor recommendation to buy nor an offer to sell securities. We are not a registered investment advisor nor a broker-dealer in any jurisdiction whatsoever. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data.

    Mar 28 9:08 AM | Link | Comment!
  • The Danger Of Gas & Oil Stocks - Canadian Oil Sands

    The Changing Values of Energy Stocks - Be Safe or Be Sorry
    In our previous blog, we discussed how energy companies have risen in importance to the investing public and how almost every portfolio has stocks of these natural gas and oil producers. We discussed how the price of energy rose after the Six Day War, but how the price/supply equation of natural gas has changed so radically in the past few years. We talked about the historical relationships between gas and oil and how traders took advantage of these cycles to enrich themselves.

    But that concept of the relationship between gas and oil is quickly becoming a passé story. The historical ratio between oil and gas is extinct - never to return. The new reality is that the companies that produce natural gas are in for a rough ride. But companies that produce oil are in for a rougher ride.

    The Effect on Natural Gas Companies
    Compare the location of older sources of natural gas to the location of newer sources brought into being by fracing. If existing sources of natural gas in Canada are farther away from users of natural gas, and are more expensive to extract from the ground, and more expensive to transport great distances, why would buyers of natural gas continue to deal with these older companies? If natural gas is cheaper to buy, and closer and cheaper to transport when it is closer to home, why import natural gas from Canada. As supply contracts between producers and sellers expire, the demand for Canadian energy will be affected. The changes that are coming are obvious.

    Think about AAV-TSX. Their main assets are related to the production and sale of natural gas. They have just established a committee to consider the best way to deal with the company's assets, which is another way of saying that they are having greater difficulty dealing in this new world of cheaper and easily available natural gas. Beware of any company that is in the gas business. Pricing will become more and more competitive, and profits more and more difficult to sustain. These old dividend paying companies will have to reduce their prices, resulting in dividends being reduced, resulting in lower stock prices.

    Natural gas dividend-paying stocks are no longer a slam dunk. Instead they are headed for trouble.

    Users Will Buy Natural Gas Rather Than Oil - Do You Want to Buy Oil Sands Companies?
    So now we have a high price for oil, and a depressed price for natural gas. This unbalanced relationship will continue to worsen until economic realities inevitably take hold. We know that natural gas will not go up in value any time soon, because of its abundant availability, which is primarily because of the new technology of fracing.

    Natural gas can usually be utilized for energy production, and now it is much cheaper to use natural gas than it is to use oil. Doesn't take a genius to realize that natural gas will be used more and more to replace the use of expensive oil. As demand for oil reduces, more oil is available because demand is shrinking. Obviously the price of a barrel of oil will fall.

    The 1,000 Year Supply of Oil from the Canadian Oil Sands
    That obvious reality takes us to the Canadian Oil Sands, considered a mainstay of the Canadian economy, and also considered a stable source of oil with sufficient reserves to supply 1,000 years of demand.

    There is a tremendous source of heavy oil in Canada called the tar sands or the Oil Sands. In order to produce this heavy oil, there is a substantial cost. Enormous sums must be spent on infrastructure and on transporting the final product to markets. This is a landlocked area that is remote and not near any major markets. Once the heavy oil-laden sand is dug up from the ground, there are the costs of processing which are very substantial. Heavy oil produced from the Oil Sands is very expensive. It also requires great amounts of water to process, is considered a prime source of carbon hurting the atmosphere, and a major source of ground pollution. Compare this to the formerly plentiful supply of oil from the Middle East, which just gushed out of the ground with little effort required.

    When the oil fields were found in the Middle East, depending on when and where the discovery was made, the cost of obtaining that oil could be as low as $3 / barrel. Until the oil shocks of the 1970's, oil sold around $12 / barrel. The spread between cost and selling price was quite profitable to both the suppliers of the oil and the sellers of the oil. These fields still exist and for the most part are still producing oil, yet the reserves are dwindling as demand is increasing.

    The answer to the supply issues and dwindling reserves was The Canadian Oil Sands. At $100 / barrel oil, it was profitable to invest the massive sums needed to develop the Oil Sands. Industry started spending the billions of dollars to extract the oil from the sands, with additional new projects being proposed on a regular basis.

    The Price of Oil From the Oil Sands
    The cost of producing a barrel of oil from the Oil Sands is usually calculated at around $27 / barrel, and total project costs for proposed new projects exceed $60 / barrel. New projects are always being considered because of the vastness of the Oil Sands, and the always increasing demand for oil. But a new issue has arisen - because of the heavy nature of the oil, only certain refineries can efficiently process this crude, and then there is the problem of transportation from the Oil Sands to the refinery. The result is a unique Canadian phenomenon - the Canadian Discount. Buyers pay less for Canadian Oil heavy oil. Currently this discount can be as high as $30 / barrel.

    In other words, if the average selling price of oil elsewhere is $100 / barrel, Oil Sands oil is being sold at $70 / barrel. This enormous discount is making many projects marginal at best. Add to this that there is a large shortage in pipeline capacity from the Oil Sands to markets. You surely have heard about the political storm in the USA from the failure to approve the new pipeline that would take Oil Sands oil to the southern USA.

    Also consider that the USA this year is importing approximately ½ as much oil as it did a decade ago. US oil imports are shrinking significantly while domestic production of gas and oil is growing significantly. Obama made a point of saying in his inaugural speech that the US today has greater reserves than at any time in its history. THIS IS A DRAMATIC STATEMENT.

    The Effects on the Oil Sands
    These factors are severely affecting companies producing oil in the Oil Sands. The cost of producing the oil is coming closer to the selling price of the oil - not a great economic model. To worsen the situation, even when demand is there, there is no way to get the oil to the buyers. More of this production is going into storage until it can be sold. Producers have recently been forced to ship oil in freight trains in addition to the much more efficient pipelines. Doesn't bode well for the Oil Sands.

    The Effects of the Discount From the World Price Paid to Oil Sands Producers
    The discounts on Canadian heavy crude are forcing companies including Suncor Energy Inc. to delay plans worth billions of dollars and depressing their bottom lines. Major projects planned to increase the supply of oil from the Oil Sands are being shelved or re-evaluated. Most recently, Suncor - one of the largest producers of oil from the Oil Sands - has announced 'delays' in its new Oil Sands projects.

    Pretty obvious what is going on.

    So if you are investing in stocks of companies that produce oil from the Canadian Oil Sands, perhaps you should take a hard look at the sector.

    Next we will examine the lack of common sense in the proposal to build natural gas liquefaction plants, and the shortsightedness of those that wish investors to fund the construction of new pipelines and methods of exporting natural gas.

    The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

    Mar 04 10:33 PM | Link | Comment!
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