Larry Cyna's  Instablog

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.}

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.

A Mainstay of the Toronto Stock Exchange
Over the next blogs, we will trace how and why energy stocks were good investments, but how they now pose significant risk to investors. In this first piece we trace a bit of history. In the next we look at oil v natural gas, and then afterwards where these companies are now.

Investors in Canada often include energy stocks as a key part of their portfolio. After all, Canada is a supplier of energy to the world, whether it be oil, natural gas, or coal, or uranium. (Canada used to even export nuclear technology through Atomic Energy of Canada which was a Canadian owned world class company)

Recently a new breed of energy company has arisen that is in the green energy business. Some of these companies are having great successes and they are will be the subject of a future article. Some real gems are building their holdings from their Canadian base.

The Origins of Many Energy Companies
Canadian companies are continually being created in the energy sector, and a large segment of the junior stock market in Canada (TSX Venture) is comprised of small companies drilling for oil, or natural gas, or exploring for coal or uranium. Some of these companies succeed and a number of the current large energy companies that are listed on the TSX are as a result of these successes. Investors in Canada and elsewhere own the shares of these companies.

What has been a touch disappointing is that most of these companies trade at lower p/e multiples than industrial companies. Still, this is an accepted part of the investing world, and these companies are well received as conservative stocks for investment portfolios. Usually the life cycle of these companies is:

· · to be created as juniors,

· · accomplish degrees of success,

· · then gobble up smaller competitors to enlarge their resource bases, and

· · then be taken over by still larger international corporations in similar fields.

The World Changed When Energy Became Expensive
After the oil embargo shock which was prompted by the war in the Middle East, the price of oil rose from $12 a barrel to $100 a barrel of oil, and then much higher until it then moderated around the $100 level. This dramatic increase in the cost of energy changed the world. Cheap oil in North America fueled the dynamic North American industrial explosion, which itself created the automotive industry growth, the technology industry growth and so much more that created such a high standard of living for North Americans.

This started to change as energy became more expensive, and in due course, the US transformed from a center of manufacturing strength to a center of financial strength. Jobs moved to cheaper areas of the world, as did services. All of this culminated in the financial meltdown of 2008. Cheap energy became expensive energy and this changed the world.

It also changed investing, as when prices increase, the supply/demand equation changes and companies rush in to deal with the new situation. Investors bought the shares of energy companies and rode the train. All of that is about to change and change dramatically.

When Canada Changed the Rules for Energy Trusts, it Lost its Opportunity
As a side topic, it is worth noting again how Canada completely missed the boat on this boom. As the energy boom was growing, Canada created a type of company called an Energy Trust whereby investors were able to invest in "units" of these companies. Then these companies used the money raised to buy gas and oil production, and the profits from this production were then not taxed in the hands of the companies, but instead were taxed in the hands of the investors. The advantage to investors was that the level of income tax normally imposed at the corporate level was eliminated. Profits distributed to investors were not subject to two levels of taxation, but only a single level.

These Energy Trusts enjoyed ever growing popularity and their very success doomed them. The government started worrying about the loss of tax revenue, and changed the rules, resulting in the Energy Trusts going out of business two years ago - eliminated effectively by government decree, all in the name of collecting taxes.

The energy boom for Canada is now coming to an end, and the riches from exporting gas and oil will soon dramatically diminish. Those Energy Trusts, if they had been allowed to continue growing, would by now be world class and world size, able to compete anywhere in the world. Instead none of these companies now exist; their assets have been dissipated and mostly bought by foreign interests. The irony of course is that the loss of revenue will now become permanent as Canada's energy exports are diminishing and will continue to diminish.

The opportunity to have a group of world class companies paying taxes in Canada, and Canadians paying tax on the profit of these companies has been permanently lost. Just another example of the utter stupidity of politicians. What politicians don't realize is that the world changes and changes occur more and more rapidly. Letting free enterprise create wealth for our citizens is a good thing.

Back to the issue at hand. There is a new reality. Energy is becoming cheaper.

Be Aware - Energy Companies Are Now to be Avoided
There is a monumental change occurring around us. If you ignore this change, it will be at your peril.

While worldwide demand for oil continues to increase, the cost of producing this oil also continues to increase both in monetary terms and in greenhouse emission terms. Recognition of the damage to the environment from the production and use of oil is growing, and the environmental lobby is growing in size and power. It is inevitable that oil will lose its allure as the place to invest. Compare this to the production of natural gas, where demand is rapidly rising and costs are rapidly falling to new fracing techniques and ever greater sources of supply. Energy will become cheaper and the migration by users from oil to natural gas will continue.

Companies Producing and Selling Natural Gas
Let's start with companies that rely on the production of natural gas, including the companies with primarily natural gas production that used to be Energy Trusts. At one time, there was a repeating pattern that advisors relied upon. At certain times if the year, natural gas was lower priced and at other times higher priced. Then there was an accepted relationship that gas was priced at a specific ratio to the price of oil and could be traded based on the current price relationship and temporary distortions in that comparison. The two energy sources (natural gas and oil) tended to trade in a narrow range to each other. There were also patterns that repeated, whereby the price of natural gas fell at times, only to recover at other times.

Traders used these known occurrences to buy and sell natural gas. It was sort of like this almost guaranteed source of income for the traders. All of this is history now. None of these old trading strategies are now of value, although most haven't yet realized this.

What we have instead is "fracing". Natural gas has become so plentiful and so easily available that the price of natural gas is very low, and will not rise in the foreseeable future. By now, investors should be aware of this sea-change in older investing maxims, but what investors should also consider are some other effects.

Firstly there are enormous fields of natural gas in the south central USA. It used to be too expensive to find and extract this natural gas, but that is no longer the case. Now this gas is discoverable and extractable at reasonable cost. More and more of these fields are becoming known and are coming into production. At this locally produced natural gas grows in volume, imports reduce in volume. All of this is good for the American economy, and bad for companies that own assets producing oil and gas elsewhere.

Next we will discuss troubling events that are unfolding as a result of this change in the availability and price of energy. Including:

· · the declining ability of natural gas companies to maintain their profits, dividends and share value,

· · the reality of the Canadian Oil Sands,

· · the futility of the new pipelines, and

· · the short term thinkers who are promoting natural gas liquefaction.

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.