By Julian D.W. Phillips

www.GoldForecaster.com

This is a snippet from a recent issue of the Gold Forecaster with

 Subscriber-only parts excluded. We will not disclose our forecasts on the gold price except to Subscribers.

It took a few days for the market to understand the impact of the Indian Reserve Bank’s purchase of 200 tonnes of the I.M.F.’s gold sale of 403.3 tonnes, but eventually the market did respond.   Since then, one of several announcements has been made, concerning the balance of 200.3 tonnes still being sold.   The I.M.F. has promised to inform us that they will tell us how much they were unable to sell and to sell that amount, if any, slowly in the ‘open market’ without disrupting the price.   We will be surprised if there is any left.   India has indicated it will buy more if given the chance.   So keep your eye open for the next announcement too [Since this was published Sri Lanka has bought 10 tonnes].

Mauritius Buys 2 tonnes

Mauritius bought 2 tonnes, so the I.M.F. informed us.   They will probably reap the benefits of this purchase as people rush to find out where the country is.  

To help you in this, it is a sub-tropical Island to the North of Madagascar East of South Africa.   Populated by fleeing French nobles during the French Revolution, who became sugar planters with a house by the sea and plantations inland, alongside African and subsequently Creole workers, the island was filled with people from the Indian sub-continent from Independence on.   Originally a French colony it was handed to the British as a prize after a sea battle, leaving its neighbor Reunion still very French to this day [the writer prefers Reunion for its scenic beauty, black sand beaches and volcanoes – where he had his honeymoon].   A rich country that benefitted from the sanctions imposed on South Africa it is now a very popular holiday island for primarily South Africans who visit this hotel covered island to be pampered for a couple of weeks a year.

So their buying gold is not tainted by any political overtones or restrained by any.   Perhaps the Indian influence that favors gold anyway and the Indian purchase of 200 tonnes prompted the buying.   We believe it was bought for the same reasons as India bought - prudence in the face of a decaying $.

The influence on the Gold Price of Official Gold Buying

Subscribers only-

…...   Indeed most forecasts will be wrong on the lower side.   Why?  

Because the signals being given on ‘Official’ fronts are that times are here where global cooperation on the monetary front will dissipate leaving tensions and pressure that will hurt exchange rates and currency values in unpredictable but crisis making ways.   Gold will really become the safe-haven it has been in history again.   China and U.S. currency tensions are but the start of this.

Repeat of last week’s commentary: -   President Obama is about to go to China where he will face their leaders.   What does he want and expect?   He wants China to let its currency rise [this won’t happen].   He wants friendly cooperation between the nations.   But very much to the point he then says that, “if we don't solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship."   They didn’t solve those that affect gold!

A look at the two very different national interests shows that there cannot be cooperation on these issues.   Political pressure therefore has to rise in the days ahead.   Bear in mind that the battlefields are not on land but in the banking and currency worlds, where all economic exchanges happen.   So here is where the influences on the gold price will be most keenly felt.

Already the U.S. has seen a decimation of its manufacturing base, a feature that President Obama realizes. In recognizing this he has said, “It is particularly important for us when it comes to Asia as a whole to recognize that in the absence of a more robust export strategy it is going to be hard for us to rebuild our manufacturing base and employment base in this country,"

Take this to a global view, where last year the G-20 expressed a desire to find global cooperation of monetary and economic issues and what do we now see?   Central banks and government intentions are now subsiding, and coordinated activity among member states is being replaced by more unilateral, nationalistic decision making by individual countries.   As gold is now a ‘tacit’ currency, gold is benefitting as the prospects for collective action on currencies is included.   Now, as we have expressed before, the overriding objective of nearly all members is to maintain some level of currency competitiveness all of which makes a weaker U.S. $ likely and benefits gold.  With national interests becoming more selfish as the pressures grow, political tension between East and West must grow.   In this way we are moving towards ‘extreme times’.   This is when gold becomes money and the possessor of that gold is empowered.  

Such tensions are as significant as the change from summer to winter.   Investors who recognize this first will be the biggest beneficiaries.

More Announcements to come from the I.M.F.

After the buying by Mauritius, there remains 201.3 tonnes to go.   China remains the favorite, but who else is anybody’s guess.   So we wait and see.  

One pertinent observation is that it is the emerging East that is most keen to buy gold.   This is because in those cultures gold has been and always will be, money.   The U.S. $ doesn’t strike a chord like gold does.   Gold has no government, currencies do.

As each announcement is made, it rings another vote of confidence in the metal as a form of money.   If the I.M.F. doesn’t want this to happen, it would do well to save the balance of the announcements until all the gold is sold and make one announcement and hope its effect will blow away quickly.   Alternatively, as they should be maximizing the proceeds of the sales, they do well to stagger the announcements and sales to raise the price up?

Enjoy the ride!

 

Overall impact on the gold market and its price

For Subscribers only!   We sent out a review of the gold market to Subscribers only, which reveals why the gold price is being held well above $1,000, where it will go next and how the gold market has changed shape due to the changes in overall central bank policies, from selling gold to buying gold.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

by Keith Schaefer

I have noticed valuations in the junior oil sector creeping up – sometimes to the point where I have to blink.  But it’s not just the increase in the price of oil this year that has driven up valuations.

Technology is increasing how much oil or gas companies can produce from a well in a day, and in the overall amount of oil or gas they can recover from a given formation – essentially how fast and how much they produce.  Technology is giving investors more leverage to the price of oil.

This is especially true of the hot new “tight” plays that are being developed in western Canada and the US, where I have been focusing the subscriber portfolio.

(“Tight” just means the oil is held in rocks like shale or sandstone, as opposed to the more conventional type of looser sands that hold hydrocarbons, and from which almost all the world’s production has come from in the last 100 years.)

As an example of valuations increasing, in August 2009 TriStar Oil and Gas merged with Petrobank’s Canadian operations, and was valued at about $109,000 per flowing barrel, which was almost double its average peer group valuation at the time.  They were a 20,000+ bopd producer, and the larger the company, generally, the larger the valuation.

But now I am seeing junior producers one tenth that size – 2000 bopd or even 1000 bopd producers – get valuations in the $90,000 – $110,000 per flowing boe (barrels of oil equivalent) range.  Most of these are in the 3-year-old Bakken play in Saskatchewan, or the several-months-old Cardium play in Alberta.  Several Canadian brokerage firms have issued reports saying these two oil plays have the best economics of any in Canada.

And as long as the big producers in these basins, like Crescent Point Energy (CPG-TSX) trade at $193,000 per flowing boe, there can be lots of money making take-overs for investors.

The Bakken oil play, located in the Dakotas and Saskatchewan, is a great example of how technology is constantly improving economics.  Three years ago, expected recoveries were 10%.  But as companies are learning how to better frac these wells (sending fluids down at very high pressure to break up the rock that holds the oil), recovery factors (RF) have gone up (so far) to 22.5%.

Independent consultants gave each Bakken well a proven reserve of 50,000 barrels in 2007.  Now that’s up to 100,000 barrels, and likely to go higher.  The play is only three years old.

Initial Production (IP) rates have increased, as fracing techniques have evolved. The number of fracs a company does in a formation from one drill pad has increased, in several stages, from five to 40.

These production increases from technology are happening in natural gas plays as well.  RBC Dominion, Canada’s largest securities firm, puts out a detailed chart every week outlining the IP rates in gas wells in the Haynesville-Lower Boissier shale in Louisiana.  It shows the average IP rate of a well there in Q1 2008 was 2.4 mmcf/d (million cubic feet of natural gas per day). The Q2 average was 6.3 mmcf/d.  Q3=10 mmcf/d.  The average so far in Q4 2009 is 14.6 mmcf/d.  The average IP rate has increased in nine consecutive quarters.

Also in the Bakken, the decline curves of these wells are not as steep as they used to be.  Wells decline in production every year, but in these tight rock formations, the production levels decline rapidly – up to 70%-80% in one year, before flattening out. This big elbow in production is called the decline curve. 

Petrobakken (PBN-TSX), one of the leaders in technology advances in fracing, has a slide on their most recent powerpoint that shows almost no decline in production for their recent wells over the first six weeks (at a very high 340 bopd!).  I couldn’t tell if this was a statistically significant sample or not, but this is rare, if not unheard of, for this play. These tight oil and gas formations are characterized by initial steep decline rates.

While overall costs are up, costs are lagging increased revenue with all the new technology; i.e net cash flows per well are increasing.  Wells in the Bakken with one vertical stem and four horizontal legs coming off it are not that much more expensive – $9 M each – than drilling 4 vertical wells. 

These are several reasons why, according to both Haywood Securities in Canada and UBS Securities in the US, these Bakken wells have 300% IRR with all costs factored in. 

This is at least twice what any other play is generating.  And this is why the valuations for even the small, junior producers are well above what most investors are used to.  Better production.  More cash flow.

As well, these formations have a high repeatability factor; once one well hits oil or gas, and geologists can see the oil formation underground with seismic, companies can give the market a high degree of predictability on what future production and cash flows will be.  Investors are clearly willing to pay up for that.

And as long as Crescent Point trades at $193,000 per flowing barrel, (still only 1x NAV, according to the most recent BMO Nesbitt weekly report) these highly valued juniors will make investors money, because CPG or Petrobakken will end up buying them all up at some point.  So the high-priced junior trading at $110,000 per flowing barrel theoretically can still have a 75% capital gain left in it, plus whatever organic growth it can create.

In one of my upcoming issues, I will outline which junior producers have land packages in these new plays, and what kind of production growth subscribers can expect from each of them. Many of these highly profitable juniors are brand new, have just raised money (so little to no debt), and are run by proven management teams who have built and sold E&P (Exploration & Production) companies before.  As production grows, these ground floor opportunities will soon be gone.

DISCLOSURE: I own 200 shares of Petrobakken.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.

 

 

By Julian D.W. Phillips

This is a snippet from a recent issue of the Gold Forecaster with

 Subscriber-only parts excluded. Non-Subscribers will not be given our price forecasts, sorry!

Gold is higher than ever before and is still climbing. Many investors are waiting for a fall in the gold price, because they are looking at the past market shape, that has not factored in the major sea-change in the shape of demand.   Even many institutional analysts have not realized just what has happened to the market and turn only to their charts to decipher the next moves.    You our subscribers, we hope, have realized from our writing and forecasts that a great deal more is still to come in this gold market in the years to come.

The impact of I.M.F. Sales of Gold on the gold price>

Essentially there has been a leap in the evolution of the gold market, due to the I.M.F. sales of gold.   For a couple of years the pending sale of 403.3 tonnes was seen as an overhang on the market and one that pointed to the days when gold’s price would peak.   But the reverse has occurred once the first portion of the 403.3 tonnes sale was announced.   We are waiting for further announcements on the third tranche of 201.3 tonnes.   Please note that India indicated it would be an ongoing buyer of gold from the I.M.F. Mauritius is happy with its 2 tonnes.However, if this is another central bank and not Russia or China the market will again be surprised and take the gold price even higher.   China will have the same impact, with all eyes on the quantity it buys.   This is because of the tide of central bank’s changing attitude to gold expressed in the action of buying gold, has not yet been fully accepted by the market place and monetary analysts.   To do so would also herald as well as define dropping confidence in the U.S. $ and other paper currencies.   Monetary authorities will fight this all the way, even in the face of gold buying by central banks.

A look back in history to the time when the I.M.F. first sold gold shows us that their motive was to support the S.D.R., but this failed.   This time their motive is entirely different.   They simply want to sell gold for as much as they can.   But not small amounts of gold, as this is the first time since the U.S. and the I.M.F. sold gold in large amounts [500 tonnes at a time - at auction] last century that the market has been able to buy gold in large tonnages.   It may well be the last time too!  

The sea-change attitude to gold has now been shown by these sales.   It is central banks who want to hold and buy gold.   This is not a temporary phenomenon, it is a change in an attitude that has dominated for the last 38 years, since Nixon closed the ‘gold window’ on selling the U.S. $ for gold.   One cannot underscore this fact sufficiently.   It will hold sway for at least a decade if not longer [the clouds on the horizon make it difficult to see more than a couple of years now].

Political and economic changes in the world.

Stand back in your mind’s eye and look at the last five years changes in the global economic and political world.   Unbelievably the Western Financial system saw a breakdown that startled and disappointed even its staunchest supporters.   The system was saved by the skin of its teeth.   Today, the banking system, standing as the arteries and veins of this system, seems disconnected from the needs of the world riveted by their own greed.   As the tentacles of the banking system followed the economic development in all countries, so the ripple effect of these crises spread globally into all countries except China and India.   In China the government has a tight grip over every part of economic life and can effectively dominate the banking world.   That’s why China keeps growing so much.   In India, a cash-driven Society, banks, like government are viewed with suspicion and find making headway extremely difficult.  

With the currency system and foreign exchange markets stemming from the banking system [banks remain the major players when it comes to exchange rates] the crises flowed into all nations to some extent.   So far the root causes of these crises have not been attended to so stand a real chance of re-occurring.     

The crises are now seen in the global economy, as a U.S. $ crisis.   After so long a decline in the exchange rate of the U.S. $ the U.S. monetary authorities are ding nothing about it, except to keep repeating that they favor a strong $.   This is now bordering on the ridiculous as all see that the U.S. stands to gain so much from a falling $.

Now extend that and we are facing a growing situation where political tensions start to grow. President Obama went to China where he faced confident leaders.   What did he get?   He wanted China to let its currency rise [this won’t happen]   He wants friendly cooperation between the nations [he will get this as far as it suits them both.   But very much to the point [regarding currencies] he then said that, “if we don't solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship."   A look at the two very different national interests shows that there cannot be cooperation on currency issues.   Political pressure therefore has to rise in the days ahead.   Bear in mind that the battlefields are not on land but in the banking and currency worlds, where all economic exchanges happen.   So here is where the influences on the gold price will be most keenly felt.

Already the U.S. has seen a decimation of its manufacturing base, a feature that President Obama realizes. In recognizing this he has said, “It is particularly important for us when it comes to Asia as a whole to recognize that in the absence of a more robust export strategy it is going to be hard for us to rebuild our manufacturing base and employment base in this country,"

Take this to a global view, where last year the G-20 expressed a desire to find global cooperation of monetary and economic issues and what do we now see?   Central banks and government intentions are now subsiding, and coordinated activity among member states is being replaced by more unilateral, nationalistic decision making by individual countries.   As gold is now a ‘tacit’ currency, gold is benefitting as the prospects for collective action on currencies is included.   Now, as we have expressed before, the overriding objective of nearly all members is to maintain some level of currency competitiveness all of which makes a weaker U.S. $ likely and benefits gold.   With national interests becoming more selfish as the pressures grow, political tension between East and West must grow.   In this way we are moving towards ‘extreme times’.   This is when gold becomes money and its owner calls the shots.  

Central bank gold buying is telling us that.

Where will this take the gold price to and how can we best profit from the gold markets?

For Subscribers only!  

We are sending out a review of the gold market to Subscribers only, which reveals why the gold price is being held well above $1,000, where it will go next and how the gold market has changed shape due to the changes in overall central bank policies, from selling gold to buying gold.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

 

By Andrew Mickey, Q1 Publishing

“Maybe [gold] will reach $1,100 or so but $1,500 or $2,000 is nonsense.”

That’s what Nouriel Roubini said a few days ago at the Inside Commodities Conference in New York.

The comments from the economist credited with foreseeing the banking crisis were aimed squarely at investing legend Jim Rogers. According to reports, Roubini specifically referred to Rogers’ call for $2000 gold as “utter nonsense.”

Since then, gold has continued to set new highs and is attracting a lot more attention from some of the best investors in the world.

The Day Gold’s Fate was Sealed

Back in March, when the S&P was sliding back to 1997 levels and wiping away years of gains every couple of weeks, the prospects for gold became more attractive than ever.

In March the Fed officially announced it would be monetizing government debt. In an official announcement the Fed announced it would “purchase up to $300 billion of longer-term Treasury securities over the next six months.” This was in addition to its purchases of more $1 trillion worth of agency debt and mortgage-backed securities.

On top of all that, Chairman Bernanke forthrightly declared in a 60 Minutes interview the Fed was “printing money.”

There’s no turning back from this point. The U.S. government continues to set record deficits. Even the rosiest projections – those from the Whitehouse – have the annual deficit remaining at $700 billion a decade away. The U.S. dollar is in a big hole and there are no responsible (i.e. non-inflationary) ways out of it. And gold is becoming an increasingly attractive save haven.

When our free gold report was released last March (click here to claim you’re copy), the central bank’s open admission of money printing was an essential condition as sealing gold’s fate as an increasingly dear asset. We the report noted, “Every few decades, the right conditions come along to make an absolute fortune in gold and gold stocks. Right now the conditions are right.”

Regardless of the fundamentals, some - like Roubini - see the gold run coming to an end sooner than later. Others, including some of the most successful investors in the world, see a much different story playing out.

Not Just for Gold Bugs Anymore

Since the official announcement earlier this year, it’s no coincidence a number of the world’s best investors have jumped on the gold bandwagon and have earned exceptional results and they’re just getting started.

Leading the way of has been hedge fund John Paulson. The man who “made too much” by betting against subprime mortgages has been buying gold and gold stocks since “the day gold’s fate was sealed.” Since Paulson’s firm’s disclosure in May, gold prices have 23% and gold stocks have more than doubled that.

But here’s the thing about Paulson – he’s not a “hot money” hedge fund manager looking for a quick score. He’s always after the truly big opportunities.

As we noted back in May:

Paulson began betting against subprime mortgages in 2005. That was well before the housing market peaked and nearly two years before subprime markets started to falter in 2007.

He was right, but he was early. He stuck to his bet even though the housing market continued to do well. Eventually, it paid off.

Paulson may be getting most of the headlines for gold, but a slew of other great investors have been moving into gold.

For instance, Steven Leuthold has been on a roll lately. His Grizzly Short Fund returned 73% in 2008. Granted, was tough not to make money being short in 2008, but 73% far outpaced the overall market’s decline.

Leuthold also called a major market bottom on March 5, stating comparisons made between the credit crunch and the Great Depression were “out of touch with reality.”

Leuthold explained in his firm’s quarterly update for shareholders of his Core Investment Fund:

As mentioned in our last quarterly letter, the Core Fund established a small position in Physical Metals (now about 2% in Gold and a little less than 1% in Silver).We plan to add more when (if) prices come down from current lofty levels. We continue to be concerned about the long term prospects of currency debasement inflation (a run on the dollar). Essentially, this holding is viewed as an insurance policy, and will likely be increased in coming months.

The line-up of newly minted gold bugs doesn’t stop there. One of the greatest traders in the world, Paul Tudor Jones, has recently declared his interest in gold.

Jones, who built Tudor Investments into an asset management powerhouse with $11 billion under management, recently told his funds investors:

I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time.

As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve. Gold appears to be cheap. In our view, gold’s value should increase as its scarcity relative to printed currencies increases.

Now, it’s only a matter of time the herd piles in. Big institutions still have very little exposure to gold and most retail investors still haven’t even considered it yet. But there’s still time left to get in.

Two-Step Strategy to Making a Fortune in Gold

Everything is in place for gold. And as gold makes incrementally new highs and rebounds from the eventual and unexpected corrections, there will be more opportunity.

But at this stage in gold’s run, there’s a simple two step strategy to make a fortune in gold in the next few years.

Step 1) Make a plan to buy gold and gold stocks over the next three to five years
Step 2) Stick to the plan

That’s the beauty of getting in something relatively early. Gold has made a good run over the last eight years, but the biggest money will likely be made in the next eight years as a lot more money piles into the “utter nonsense” that is gold.

Good investing,

 

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Editor’s Note: Gold is back on the rise and there’s never been a better time to get involved. In his latest update, Andrew reveals the 5 best gold investments to buy now. Early readers have had the chance to earn total gains of 1646% while gold prices rose a mere 13%.

Now, we’re looking at a situation which could deliver even more. Learn more how to get your complimentary copy by following this link.

The Energy Report and Andrew Mickey

Although Q1 Publishing's Founder and Chief Investment Strategist Andrew Mickey expects to see the U.S. stock market slip as much as 25% over the next 6 to 12 months, he comes to The Energy Report to share tidbits about several companies in his scopes that present low downside risk with ample upside potential. Generally beyond media noise and the glare of market spotlights, these companies are carving niches for themselves in various segments of the energy industry. For example, Andrew's list includes a junior lithium company uniquely positioned, an up-and-coming miner that "if you like lithium, you'll have to like," and one of the only ways regular investors get into the fastest growing venture capital sector.

The Energy Report: In one of your recent articles, you suggest that even if good economic news continues coming out next year, the market is likely to drop 20% to 25%. Would you go through the logic that leads you to that conclusion?

Andrew Mickey: If we look back to the way the stock market has moved over the past 20 to 30 years, it has always been valued relative to earnings. The most common valuation for the market has 15 to 20 times the 10-year average annual earnings. That smooths out the up-and-down years and brings you to a fair valuation—with the S&P 500 between 800 and 1000. Granted the stock market goes much higher and much lower than that—and can stay at an extreme for longer than most investors expect—but it always returns to its fair value.

Now that so many stocks have had a great run, the S&P is up to around 1100 and it's overvalued. The market basically has a lot of positive expectations built in. Earnings estimates are starting to rise, though all CEOs are still trying to keep expectations low. Economic expectations are rising. Expectations for everything are rising and we've learned consistently throughout the years—great expectations usually lead to great disappointments.

So as long as GDP growth is low, the market will fall right back to fair value. That's why, even with the big picture news getting better, the very real risk is that it's still insufficient to hold the S&P up at 1050, 1100, or wherever it does eventually top out at.

We may not have an outright crash because everyone is still on watch, but probably a slow, steady fall over maybe six months to a year.

TER: Are all sectors currently overpriced, or will some continue to appreciate?

AM: There will be some that will appreciate. But it won't be a case of great or greater returns like we've had. There is some great historical research done on the way stocks move. One important factor is the factors of market, sector and stock. If you break it down, basically 50% of a stock's movement is usually tied the overall market.

There's nothing you can do about the overall market, but there still is opportunity in that another 30% of that stock's move depends on the sector. And the remaining 20% can be attributed to the individual company. In other words, you can expect the initial impact across all sectors. There will, however, be the divergence between the quality and value and all the garbage that's done so well recently.

TER: How much focus should individual investors put on international investments versus North American-based investments in this environment?

AM: A lot of it depends on your time horizon. If you have five years or more, you can build a reasonable case for focusing 30% to 50% of your money in international stocks.

That's a very high concentration for any portfolio in any particular sector. If you're looking out that far, you definitely want to be in the emerging markets. In the short term, the falling dollar has been very helpful to some of the really large, high-quality U.S. companies.

TER: Another of your recent articles suggests you're pretty bullish on lithium due to the growing demand for lithium ion batteries. But why lithium rather than the battery market in general?

AM: Hybrid electric vehicles (HEVs) and electric vehicles (EVs) are going to be a big opportunity. And history provides a good precedent for how to invest in them successfully. For instance, let's compare it to the growth of computers. Everyone was getting them in the '80s and now they've become standard parts of most folks' lives. By the mid '80s, about a decade into the growth of computers, everyone knew that it was inevitable that everyone would have one in their homes and in every office around the world. But if you tried to pick a computer maker, you'd have to be right about which company to invest in and at which time. You'd have to buy Apple early, then Gateway and Dell, then Apple again. That's a lot, probably too much, to get right.

That's kind of what we're seeing with the HEVs and EVs. The producers battle it out for market share. Toyota and Honda have led the way, but there are a lot of companies catching up to them. It's anybody's guess who the winner will be. But there is one thing we do know; the market will be very competitive. And in a competitive market, maintaining market share kills profit margins and you'll see stock valuations usually follow the profit margins up or down.

Right now dozens of companies are trying to produce HEVs, EVs and the batteries to go along with them. They all have their own specific deals, so at this stage, I am not going to even try to pick the winner. The odds are so stacked against you.

But the bottom line is this growing industry will demand lithium. We know that. So we might as well just go there. It makes it all easier and cuts down the risk of trying to figure out the right company at the right time.

TER: So it doesn't really matter who wins the battery race. You just know they're going to have to use lithium.

AM: Exactly. But I know there are even competing technologies with lithium ion batteries too, such as super capacitors. They may even be better, safer and more efficient. But lithium will be the winner because the U.S. specifically is going to invest $27 billion of government money into batteries and alternative fuel for vehicles over the next few years. Maybe $10 billion or $15 billion has already been doled out. If you look where that actually goes, more than 90% of it is going to lithium ion battery research, building lithium battery factories and outright buying the batteries for the U.S. automakers.

So another technology may be better, but it has to compete against a reasonably good one that has been heavily subsidized.

Another positive for lithium is the lithium production industry is dominated by a small group of companies. It reminds me of a similar opportunity we jumped on back in 2006 when I first started researching potash. The potash is dominated by two global oligopolies. They semi-openly work together to fix prices at the highest possible level. It's kind of an obscure industry, so they get away with it. You aren't going see Congress calling "Big Potash" to testify the way oil executives are called when oil prices are up.

That's why the lithium industry can be dominated by a few large companies and continue to be for years. No one is likely to stop them.

That's basically what the lithium makers do, too. In an unofficial way they're an oligopoly. They fairly easily expand or cut capacity to match market demands. And their costs are all similar. So they don't go out battling it out for market share. They know they can all make some money as long as no one gets too aggressive.

It's not illegal or anything like that. Just look at how often the cell phone companies and rail liens lose money. They don't because they all get along. It's just how it is. The way I see it is they've been working together for maybe 20 or 30 years, this is the golden era they've all been waiting for, and the odds of one breaking from the group are very low.

TER: So where are the investment opportunities under those circumstances and with the market so tightly controlled by the leaders?

AM: There is room for small juniors as long as they can compete on price.

TER: What juniors are you following in this space?

AM: The one I like best is Lithium One, Inc. (TSX-V:LI). The company is being led by a quality management team of real developers.

For instance one of the directors is Paul Matysek, who built Energy Metals Corporation up long before uranium really got hot. He ended up selling the company to Uranium One, Inc. (TSX:UUU) during the boom for over a billion dollars. That was a massive success.

I first met him in 2006; we just crossed paths on potash at the time. To his credit, he was there a few years before me and now, he's involved in Lithium One. That's a good sign.

Also, the key difference between Lithium One and most other lithium juniors is the types of properties it owns. Many own the hard-rock lithium that has to be mined the old-fashioned way, which costs a lot more.

Lithium One has the hard-rock (in Canada), but it also has the lithium brines in South America, or salars.

That's the difference maker for me. Basically, to mine the brines you just pump this solution out of the ground and then just let it dry on drying pads. Once it's dry, you scoop up all the lithium. They're about half as cheap to operate as the hard-rock lithium mining.

So those with salars will be able to compete right alongside the big boys. So here you have a company that can produce, be competitive and actually increase shareholder value over time.

That's the kind of stuff to look for if a boom really comes. Suppose lithium demand increases about 8% per year. That's about seven times faster than oil and twice the rate of copper over the past decade. There are a lot of other factors, but it's shaping up to be a solid opportunity. But if there are supply disruptions or anything like that, it's going to turn into something great.

Finally, lithium stocks are still relatively cheap to a lot of other metals. There's still a lot of contention over future production capacity, total demand, ability to recycle it and a lot of other factors—but we're looking at the big picture. The story is great, simple and tangible for most investors, and that's a big part of it too.

TER: Is Lithium One the only producer with salars?

AM: Outside of China, which produces 37% of the world's lithium, the only other companies that have it are major ones, such as SQM (NYSE:SQM), Rockwood Holdings Inc (NYSE:ROC) and FMC Lithium Corporation (NYSE:FMC).

They produce more than 60% of the world's lithium and they're all big in South America. That's where their salars are and that's where Lithium One's salar property is as well.

TER: Is the magnesium story similar to the lithium story?

AM: Magnesium is another metal that could do really well when it comes to batteries. There are three main lithium ion types of batteries and the lithium-manganese battery has shown the biggest potential so far. So if you like lithium, there could be a big opportunity in manganese as well.

In the past, about 80% of manganese has been used in steel production, but there's this new demand for it now in batteries and there are no manganese-only miners out there.

However, our best-performing recommendation, Ventana Gold Corp. (TSX:VEN), was actually spun out of a company called Wildcat Silver Corporation (TSX-V: WS). Wildcat owns 80% of what is basically a silver/manganese deposit in Arizona. And if Wildcat has the same backers, well, it is going to be another solid winner.

Its net present value is probably about four times higher than its market cap right now. There is plenty of exploration upside left, too. And there's silver exposure, too.

TER: You're also bullish on some LNG plays. Natural gas supplies in storage and in production are at all-time highs in the U.S. and so the price is really low. What opportunities are you seeing in LNG?

AM: We know LNG is going to be a growing fuel source for the next 20 years. Everyone is building facilities. All the major oil service companies, like Schlumberger Limited (NYSE:SLB), and the smaller ones, like Chicago Bridge & Iron Company (NYSE:CBI) , have been doing a lot in LNG. They're facing backlogs of five or six years for LNG construction jobs in some cases. Australia just announced they're expanding their $20 billion facility. And Indonesia is expanding theirs, too.

We know it's coming. And as long as you can sell it into an end market for more than $2 per Mcf (million cubic feet), everything on top of that's pretty much profit.

That's why, even though we see U.S. reaching very high production, LNG is still headed toward the U.S. from all over the world right now. There's not enough natural gas demand in Asia yet, and in the LNG market, you essentially just dump it all in the U.S. if you have no other market for it.

All along the West Coast, LNG regasification facilities are set up to receive LNG. They've been running at 5% to10% of capacity for the last few years or, in some cases, aren't doing anything. They've been real loss leaders. So as long as U.S. gas prices are above $2.50 Mcf or, the LNG can and will come here all day long.

TER: With record production, record levels of storage and the world dumping LNG on the U.S.; where is the opportunity?

AM: Well, that's why I'm staying away from the natural gas producers in the U.S. Most of them have returned back to the same levels they were at in 2005, which was when the natural gas market was tight and getting tighter.

It's not 2005 in the natural gas market and there's just not going to be a huge rebound in natural gas demand. Still though, waves of LNG tankers are coming toward the U.S. as we speak. So I don't necessarily like the U.S. producers because they were paying them a $1 per Mcf just to buy reserves and then production costs on top of that. Frankly, a lot has to come together economically for natural gas demand to roar back. It's possible, but investing is about odds, and odds are against it.

TER: And it's a different story overseas.

AM: Absolutely. In Asia, companies are buying natural gas for less than 10 cents per Mcf—even cheaper in some cases. So you can buy the same amount of natural gas in Asia for 90% less than you can in the U.S.

There are more risks, but you're getting a huge head start. That puts them way ahead of the U.S. companies. Even after the costs to ship an Mcf of LNG, they're still well ahead of U.S. producers expanding into unconventional reserves when it comes to costs.

CBM Asia Development Corp. (TSX.V:TCF) (OTCBB:CBMDF)—which is in Indonesia—has anywhere from 1 to 8 trillion of cubic feet of reserves. They develop coal bed methane, which is a bit different than natural gas the way it's produced.

TER: So you see good upside potential there?

AM: I look at it like this, CBM Asia owns a gas field in Indonesia—and they pretty much own rights across the whole island of Sumatra—and if it hits, you're looking at a company that could easily be worth a few hundred million dollars as it builds provable reserves and determines the economics of them. And I think the market cap is still at less than $20 million. So, that's the type of idea we're looking for.

TER: Will CBM Asia need to rely on U.S. consumption to be able to sell all of this natural gas they're producing? Or can Asia, being an emerging economy, absorb it?

AM: Over the long run Asia will be the large natural gas consumer, and eventually most of Asia, at least in the north, will end up looking like Japan—which imports more than 90% of its natural gas because it has no real local resources. South Korea is already in the same situation as Japan, with a desperate need for LNG. Their demand will increase. Right now, they're the ones supporting the LNG market, especially the developments in Indonesia, Australia and the Middle East.

The U.S. is the safety valve, because U.S. gas prices will always be above $2 Mcf barring an outright depression, of course. They dropped below $2 temporarily, but that's the new normal, just like oil is always going to be above $30. And if you're paying 5 cents per Mcf for reserves, you can still make a lot of money in LNG.

TER: What's unique about CBM Asia that's interesting to you?

AM: Mostly the value and risk/reward at these levels. Their land package is absolutely huge; and if this coal has high permeability, which we should be learning more about in a few weeks, the upside is tremendous and downside risk is relatively low.

Also, the key with CBM Asia is that it's in an area where there already is a LNG liquefaction facility built. These facilities generally take $5 billion minimum and 5–10 years to build. So, that's where CBM Asia is kind of in the perfect spot geographically. CBM Asia can just plug right into that, and start flowing cash fairly quickly.

And beyond that, Indonesia is an up-and-coming country, young population, and I'm not really concerned about the political risk.

TER: How about Europe?

AM: That's another wild card. They're currently building LNG regasification plants in Europe to deleverage Gazprom's position as the dominant natural gas supplier to Europe.

European LNG demand is going to be very big over the next 5–10 years, too.

TER: What other trends are you're following in the energy sector?

AM: Companies going green. It's not necessarily environmental consciousness or because they buy into the global warming nonsense. The simple reason is you can charge customers more in the green space. A recent survey found that customers are willing to pay as much as 5% to 10% more for a product, just because it's green. That creates a situation where if you can green your products for an additional 2% cost, you can increase your margins, as well as use green to take market share. So, there's a huge opportunity there in green marketing.

TER: Any particular players in that space that you like?

AM: Greenscape Capital Group (TSX-V:GRN) has already had success across all kinds of different sectors. It owns a women's line of organic luxury golf clothing and some other products that are all green-focused.

They have a unique selling proposition; essentially Greenscape Capital was founded on acquiring growing companies in the green space. Basically, it's impossible for many regular investors to get into the companies at very early stages.

TER: Interesting.

AM: Greenscape has already started making acquisitions too. Greenscape recently announced a deal to acquire a company that "greens" parking garages. Again, it's not because parking garages are big polluters, it's because they can save them money. For essentially an upfront cost of $26,000, they can go into a parking garage, replace light bulbs and a few other things, and save the garage $16,000 per year. It's going to add $10,000 to your bottom line next year and $16,000 a year after that all for $26,000 upfront.

If I'm a parking garage manager or owner, the only thing I would say is, "Green or not, when can you be here?"

A company like Greenscape, which is so flexible and its focus is on green and amassing companies, it has tons of opportunities to cross sectors like that—from apparel to parking garages and into anything you can think of.

That's something that is really in demand right now and will continue to be. And Greenscape is filled with professionals who have already shown they can do it well, get necessary financing and move their business along quickly.

Best of all, with a market cap around $10 million, the market clearly doesn't get this company yet. It's not some hippie-pipe dream company that's going to make the world a better place at any cost to itself and its shareholders. It's focused purely on economics. And it's really the only way to get into the biggest growth area for venture capital investors. The market will figure it out eventually.

DISCLOSURE: Andrew Mickey
I personally and/or my family own the following companies mentioned in this interview: CBM Asia, Greenscape and Wildcat Silver

I personally and/or my family am paid by the following companies mentioned in this interview: NONE

Andrew Mickey is Q1 Publishing's Chief Investment Strategist. Q1 Publishing provides investors with "well-researched, level-headed, no-nonsense" business analysis and advice that claims to filter out 99.9% of the noise in the financial world to help investors "secure enduring wealth and independence in today's turbulent financial markets." Its products include subscription-only communications such as Andrew Mickey's Prudent Investing and the President's List as well as a free eletter called Prosperity Dispatch.

Andrew's investment philosophy is based on being prudent (limiting risk without surrendering upside potential), paying close attention to risk-reward relationships and evaluating a variety of asset classes. He searches relentlessly for explosive assets and businesses off the beaten track, traveling often to unearth hidden gems. Over the past few years he has visited Indonesia, the Ukraine, Papua New Guinea, Russia, Mexico, Australia, China, Thailand, Albania, Croatia, Norway and many other places. His research has been featured on CNBC, BNN, BusinessWeek and other media outlets.