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Your Prey for 2006

As 2005 comes to an end, investors celebrate the coming new year and bring new expectation with it. As investors, we try to sell our losing investment before the year ends and sell our winning investments after the new year. This is to receive the benefit of early tax deduction and deferring our tax liability. Either way, after selling your investment, you have some spare cash to invest. Therefore, you would need some idea on where to invest your money.

Scouring the 52 week low is normally a good place to start. Tax loss selling has made many stocks to make the list. This is great for us, small investor. Barring any fundamental news, cheap stocks that get cheaper will be a good investment candidate. Turnaround investors look for stocks that are touching 52 week low and starts researching them. Many of them bounces, providing investors with outstanding return. Examples for this year include: ATI Technologies Inc. (ATYT, up 39% from the low), Seagate Technology (STX, up 29% from the low), Omnivision Technologies (OVTI, up 68.8% from the low) and even Maxtor Corp. (MXO, up 45% from the low before being acquired). Maxtor is now trading 120% above its 52 week low.

While stocks touching new 52 week low, do not always bounce, this is a good place to start your research. Therefore, your prey for 2006 should at least include companies that has recently touched 52 week low. These are several ideas to get you started for 2006.

Pier One Imports Inc. (PIR). The retail stores specializing on furniture and other decorative accessories, are experiencing customer defection this year. Same store sales has been declining and there is little indication that it will change. Warren Buffett used to own a piece of this company. He has since cut back on his stake late this year. It has recently fallen to 8.90 per share from the 52 week high of 19.98, a 55 % hair cut.

Shanda Interactive Entertainment (SNDA). For overseas exposure, especially China, Shanda should be on your watch list. It provides online gaming to the Chinese community, especially Massively Multiplayer Online Role Playing Games (MMORPG). Don’t let the word scare you. It is basically an online gaming portal where it lets gamers fightplay with other gamers. A good way to foster customer’s loyalty is through the interaction with other individuals. Online Gaming provides Shanda with that opportunity. It has fallen to 15.00 from its 52 week high of 45.40, a 67% hair cut. The appealing thing about Shanda is its strong balance sheet (more cash than long-term debt) and the potential growth of its market. Furthermore, the company is profitable. Those cash pile will continue to grow if that happens.

Navistar International Corp. (NAV). This company makes and distributes commercial trucks and busses. Competitors include Paccar, Volvo and the like. It is sporting a forward PE of 6 and decent balance sheet. If it can maintain a 0% growth in profits, the stock price won’t trade at 28.80 for very long.

Verizon Communications Inc. (VZ). The largest baby bells of all are having a decent year on the profit line. However, concerns about competitions and high debt load, has reduced its stock price for year 2005. It is currently trading at 30.27 per share with dividend yield of 5.30%. Currently, dividend is about half of its annual profit, which is considered safe. If Verizon can repeat its profit performance, the dividend for 2006 will be safe. However, it currently has a high debt load of 34.3 Billion. The company has tried to reduce its debt using its cash flow from operations. On Dec 31st 2002, long term debt stood at 44.8 Billion. Therefore, balance sheet has actually improved while stock price goes nowhere.

Fresh Del Monte Produce Inc. (FDP). The makers and distributors of fresh fruit produce is not having a good year. Pricing weakness, combined with the higher than expected cost, has decimated its stock price. Recently, management has reportedly hire JP Morgan to run an auction for the company. It can be sold to as high as 1.8 Billion according to TheDeal.com. This translates into 30.70 per share. FDP recently trade at 23.64 per share. If the deal goes through next year, you have the potential of a 29.9% return. However, the fact that management is exploring the buyout, indicates that business aren’t so good at this company. If the deal doesn’t go through, stock price may see further depreciation.

You buy and price falls,you sell and price rises.

One say’s “I bought “XYZ Company” at Rs.2200 and immediately after I bought the stock price dropped to Rs.2000.” I feel sad. Another comes with a different version “I sold “XYZ Company” at Rs.2000 and it went up to Rs.2400 same evening” I made an imaginary loss of Rs.400 per share.

Solution:

You can buy more shares @ Rs.2000 and reduce your overall buying cost. This has to be done only if believe in the fundamentals,management and the future prospects of the company.

To do this you need to keep money ready.whatever money you have and want to invest,split it into two parts. Then keep 50% cash aside, only invest with other 50%.So if need to buy more of any stock when the price falls you have ready cash.

Also now if you have 200 shares of XYZ Company 100@Rs.2200 and 100@Rs.2000.Then the price goes up to Rs.2400. Sell only 100 of the shares.Then if the price further shot up, you have some shares to sell And participate in the rally to make money.

Next You sold the share and the price went up. The solutoion to this is never sell all the shares at one time.Sell only 50% of your shares.So if he price goes up later you still have the other 50% to sell and make profit.

The golden Rule is to first do your own analysis of the stock before investing and buy on tips. Also invest only in companies which declare dividends every year. To be sure that you are not investing in loss making companies.

Every Market expert advices to do your stock analysis before investind in the stock market.
But nobody tells you how.

Well in my next article I will write about how to do stock anaysis using various tools such as financial ratios and by checking the track records of the comapnies you plan to invest in.

P.S: If you are not Indian then replace the Rs. into your own local curreny to understand the artilce

Winning Traders – What They Have In Common

We often hear that 95% of people who try trading for a living fail within the first year. These are not very good odds and it is natural for new traders to wonder if they have what it takes. In this issue, I give you a list of 20 characteristics I believe could be found in most winners. I also included some Truths about trading.

The methods employed by winning traders are extraordinarily diverse. Despite the broad spectrum of traders, certain characteristics are found in most winning traders (in no specific order):

– Winners have a trading plan with a strategy that incorporates effective money management. They have the discipline to execute their plan relatively flawlessly and the self esteem to accept the money the market gives them.

– They use their head and stay calm they dont get excited or depressed because of their trades. They dont act on emotions. They can handle success and failure without self-destructing.

– They dont trade to feel good or to get high.

– They handle trading as a serious intellectual pursuit.

– They always protect their capital because they know they cannot trade without it. This means that they dont get caught up in the thrill of the moment, the excitement of a running stock they dont jump into careless trades.

– They love trading, trading is a passion and they spend a large portion of their time trading and learning about trading.

– They know that sometimes the best thing to do is to do nothing (sit on their hands). They do nothing unless there is something to do.

– They dont pay attention to other peoples opinions, they make their own.

– They dont try to guess the future – they know it is a game of probabilities. They understand that they will always have a percentage of losing trades but they keep the losses for those trades small. They dont hesitate to get rid of a position when the loss is still small.

– They have a great respect for the markets and they never think taking money from it is easy.

– They behave like professionals. They take full responsibility for their actions and dont look for something or someone to blame. Instead they use their losses as an opportunity to improve their plan.

– They trade to trade well, not for the money.

– While they are in a play, they dont count how much money they have made or lost because they know this would influence their judgment. They focus on trading well.

– Amateurs keep thinking what trades to get into, while professionals spend just as much time figuring out their exits.

– When they have a winning position, they dont let their emotions dictate when to close the position, which would result in small gains. They know emotions cannot be part of the decisions.

– When they enter a play, they dont have any expectation. They understand it can go either way and that nobody can know the future.

– They have confidence in their plan, patience, and discipline.

– They are not afraid because they have developed attitudes that prevent them from getting reckless.

– They have self-monitoring skills and can continuously monitor their performance in order to improve it.

Some Truths about Trading

- The market is a huge crowd of people. Each member of the crowd tries to take money away from other members by outsmarting them. Everyone, including some of the brightest minds in the world, is against me and I am against everyone. Its every man for himself. The money I want to make belongs to other people who have no intention of giving it to me.

- The market is like an ocean, it moves up and down regardless of what I want. The market does not know I exist and I cannot influence it. I cannot control the market any more than a sailor can control the ocean, but I can control my own behavior.

- Trading is all about management managing myself, my money, my attitude, and my positions. It is not about predictions, forecasts or opinions.

- There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his play an intelligent play (Jesse Livermore).

- Trading without imagination is like painting by numbers and is about as rewarding(William R. Gallacher).

- The market is not going to reward anyone for observing the obvious.

- A mistake made by many traders is that they become so involved in trying to catch the minor market swings (generating lots of commissions in the process) that they miss the major price moves.

- Advisors are only wrong when you get too many of them start thinking the same thing.

- A strategy to enter and exit trades will not help you unless you are both disciplined and organized.

Winning Stocks Always Leave “Foot Prints”

SIX STEPS and the IRREFUTABLE LAWS of the MARKET Every Investor and Trader MUST KNOW to Succeed

Step 1:

A move begins with the sponsors (smart traders) who have insider knowledge as it relates to a particular stock or market. This information will move a market up or down depending on the insiders’ information. These buyers are smart, very smart, and recognize tradinginvestment opportunities very early in the markup cycle.

Step 2:

Days, weeks, or sometimes months after a move has started, there is a brief mention in the electronic media (radio, cable, TV) or on one of the internet chat boards that a market has moved. The public hears for the first time and begins to get interested, but does not buy.

Step 3:

A blurb of information appears in print media. The move also begins getting more exposure on blogs and internet message boards. The public starts paying a little more attention, and will buy a little bit.

Step 4:

Wall Street and LaSalle Street brokers go into full hype mode and hawk the market to their customers. The public begins buying in greater volume.

Step 5:

A full-blown front-page article appears about the particular stock or market in one of the major financial newspapers, magazines, or financial websites. This is often six months after the fact and after a market has shown its greatest appreciation. There is often heavy public buying, even a possible frenzy, as all media, brokers, and so-called “gurus” start to tout the market.

Step 6:

As step 5 gets underway, the sponsors or smart traders begin to move out of the market and take their profits off the table.

The finale: The move ends, the market falls, and investors lose money.

Will Lightning Strike A Third Time For Dr. Boen Tan?

Will Lightning Strike A Third Time For Dr. Boen Tan?

A Renowned Exploration Geologist Is Pursuing Another Major Uranium Deposit in Saskatchewans Athabasca Basin

In late January, Cameco Corps director of advanced exploration tantalized the audience at Vancouvers Minerals Exploration Roundup, discussing the geology, and especially the size, of his companys Millennium uranium deposit. Drill indicated resources are estimated at 449,000 tonnes with a grade of 4.63 percent uranium oxide. Additional tonnage is inferred at the lesser grade of 1.81 percent, but still a respectable grade by anyones calculations (one percent of uranium oxide is reportedly comparable to about 50 grams of gold). Because of soaring spot uranium prices, this deposits gross value might someday conceivably exceed 2.4 billion.

The geological setting of the Key Lake Road shear zone is quite similar to the Millennium deposit, Dr. Boen Tan told StockInterview. The Key Lake Road shear zone is located within the same north-northeastern structural trend as the Millennium deposit. Camecos (NYSE: CCJ) director of advanced exploration, Charles Roy, called the Millennium uranium deposit, the most significant new basement discovery in more than 30 years. News reports suggest the Millennium discovery could host a resource of 57 million pounds of uranium oxide. The Millennium deposit is located north of the former world-class Key Lake uranium mine and south of two of the worlds highest grade uranium deposits, McArthur River and Cigar Lake.

So why is Dr. Tan evaluating a relatively early stage exploration project against one of the worlds most recent and highly lucrative uranium discoveries? Most junior companies exploring in Canadas Athabasca Basin, or for that matter any junior natural resource company, are unduly sanguine about measuring their propertys exploration prospects in relation to a major, often recently discovered, world-class deposit. All too frequently such closeology (were close to the big deposit so we can find an elephant, too) comparisons are deceptive and misleading. In many investment circles, it has become a clich. However, when the comparison comes from a highly regarded exploration geologist, such as Boen Tan, one should pay attention. Especially when Dr. Tan talks about his geological insights regarding the greater Key Lake area.

Dr. Tan was the Uranerz project geologist for uranium exploration at Key Lake in the early 1970s. His exploration work led to the discovery of the Gaertner deposit (1975) and the Deilmann deposit (1976) in the Key Lake area. According to a recent Northern Miner article, It was not until the discovery of the Deilmann and Gaertner deposits at Key Lake that the true unconformity type uranium deposit model was first recognized.

Dr. Tan also supervised the definition drillings of these two deposits until 1978. According to the Uranium Information Centre, Key Lake once produced about 15 percent of the worlds uranium mined. Over Dr. Tans long career, he was also fortunate to have evaluated some of the worlds largest uranium deposits in the Athabasca Basin, which had been previously co-owned by Uranerz. These include the Key Lake deposits, the Rabbit Lake deposits (including Eagle Point, A-, B- and C-Zone, and the McArthur River deposits).

Comparisons between the Key Lake Road Project and Cameco Corps Millennium Uranium Deposit

Asked about his opinion of Forum Developments Key Lake Road project, for which Dr. Tan is the chief geologist, We have the right lithology, the right structure and, on top of that, we have uranium mineralization. Dr. Tan was impressed with the amount of uranium mineralization scattered with the graphitic metapelites. It is very seldom you find such a lot of uranium mineralization there, he explained. Again, he compared that with exploration around the Key Lake deposit where he remarked, The graphitic metapelites at the hanging wall of the Key Lake deposit had as much as 4,000 parts per million of uranium. Its an optimistic sign in preparation for a summer drilling program.

Lets look at Dr. Tans geological comparisons between Camecos mammoth Millennium uranium deposit and the exploration he is overseeing for Forum Developments Key Lake Road project.

1.Athabascas eastern basin is comprised of Archean granitoid gneisses and Paleoproterozoic metasedimentary rocks. Dr Tan wrote, Both the Lower Proterozoic rocks and the Archean granitoid rocks occur within the KLR shear zone in similar geological setting (along the north-south structural trend,) as the Millennium deposit.

2.The Millenniums main uranium zone occurs in a pelitic to semi-pelitic stratigraphic assemblage of gneisses and schists. Asked about the drill targets on the Key Lake Road project, Dr. Tan responded, The targets are in the pelitic stratigraphic assemblage at depth which includes the same graphitic pelitic gneiss and the calc-silicate which host the uranium mineralization in the Millennium Deposit.

3.Camecos geophysical surveys indicated the presence of a significant resistivity low centered over the uranium mineralization. Dr. Tan explained, Forum did airborne VTEM (electromagnetic survey) and multiple parallel EM conductors of over 40 kilometers long were outlined. Last years radiometric prospecting was carried out and several uranium showings (from 0.1 to over 5 percent uranium) were found in the graphitic metapelites, calc-silicate and pegmatites along this 40 km conductive trend.

4.The Millennium deposit features extensive hydrothermal alteration over the lithology. The uranium mineralization was associated with dark chlorite and illite, and with a distal halo that included sericite. Dr. Tan remarked, In the Key Lake Road area, we did observe moderate clay alteration in the fractured and brecciated calc-silicates and pelitic gneiss which appear to be chlorite and sericite. In 1980s five reconnaissance holes were drilled in the area and chlorite alteration in the meta-pelites was reported from the drill cores. In a project Forum has scheduled for drilling this winter, Dr. Tan pointed out, In the Costigan Lake area clay alteration in the pelitic gneiss were intersected in several holes. One drill hole intersected uranium mineralization of 0.43% U3O8 in 0.36 m of clay altered graphitic pelitic gneiss.

5.The Millennium deposits ore mineralogy is comprised of pitchblende, with lesser amounts of coffinite and uraninite. Dr. Tan discussed the comparative mineralogy, saying, We found uraninites in the calc-silicates which occur as fine to coarse disseminated grains and as nuggets up to 2 centimeters in diameter (over 5 percent uranium). Fine grained uranium mineralization (up to 0.6 percent U) found in the fractured graphitic meta-pelite appear to be secondary uranium mineral. In the Key Lake Roads Molly Zone, Dr. Tan indicated, Uranium mineralization was found within the calc-silicates and pegmatites along the shear zone. The calc-silicates contained up to 5 percent uranium with visible pitchblende He also pointed out that at Forums Maurice Point project, which the company may drill in 2007, the prospector discovered a zone of mineralization of 100 by 10 meters wide with uranium mineralization from 1 percent up to 7 percent uranium in an outcrop.

6.Finally, Dr. Tan explained, Because all the unconformity uranium deposits in the Athabasca Basin, such as the Millennium, Key Lake and McArthur, always have lots of boron. That is indication of the hydrothermal diagenetic ore-forming process. Do any of Forums properties show boron? Dr. Tan said, The Beach Zone in the Maurice Point project has high boron elements. On top of the good uranium grades, yes, that is the extra special thing. Because it is characteristic for a hydrothermal uranium deposit in Athabasca, like Key Lake. Its a good indication like pathfinder elements.

Evaluation of Forum Developments Exploration Prospects

As with any early exploration project, additional drilling helps define the propertys potential. Many of Dr. Tans comparisons, while valid, require drilling the most promising targets. Asked about what questions that drilling the Key Lake Road project might answer, Dr. Tan responded, If the uranium is deposited under hot water, in a hydrothermal environment around 300 degrees, if you dont see the uranium during drilling, you want to see the rock alteration, the pathfinder geochemistry, the boron, and elevated uranium. He also pointed out the most obvious answer you want to see during a drill program, The thing you want to see in drilling is to see some uranium.

Some might consider Forum Development Corps relatively shallow drilling approach with hesitation. The company plans drill holes between 150 and 200 meters deep, not the 700 meters usually drilled in the Athabasca Basin. Forums Chief Executive Rick Mazur, who is also a geoscientist, saw the positive side to that philosophy, calling his exploration model unique (which it is). He added, The Key Lake project was a concept where we were looking for near or at surface mineralization. We acquired ground just outside the erosional context of the Athabasca sandstone, where we believe that basement hosted deposits could be found at or near surface.

Expensive drilling in the Athabasca Basin can break any junior uranium exploration companys bank. Financing for these drill programs can run into the millions. Exploration can take years. Investors should note that deep drilling into hundreds of meters of overburden can quickly drain a companys exploration budget. Mazur explained, We are fortunate enough to have rock exposed on surface, and not covered with 400 to 800 meters of Athabasca sandstone. What is Forums advantage for shallow drilling? We can go in there and with a very cost-effective program of geological mapping and prospecting, evaluate areas on our property where uranium mineralization has already been discovered in detail, Mazur concluded.

David Scott, an eResearch geological analyst, issued a speculative buy recommendation on Forum Development Corporation (TSX: FDC) in October, 2005, and wrote the company has an excellent management and advisory team with decades of experience in the Basin. They have staked two well-positioned properties and have moved quickly to explore them. eResearch set a 12-month target price of C0.60share on FDC shares, with a potential target price of C0.90share if the company continues to get good results in the Athabasca Basin.

The analyst re-iterated the speculative buy recommendation on February 13th with the target price of C0.60share. The analyst based his investment opinion and price target by comparing Forum Development against peer group junior uranium exploration companies. Valuation was arrived at his price target by comparing Forum Development in terms of (a) similar-sized uranium exploration companies and (b) uranium exploration companies with properties next to Forum Development. FDC shares traded between C0.40 and C0.50share during February.

Snapshot: Dr. Boen Tan

Dr. Boen Tan is a member of the Association of Professional Engineers and Geoscientists of Saskatchewan, and possesses over twenty-five years of uranium exploration experience. Dr. Tan joined Uranerz, a private German company, in 1969 and after a number of years as a field geologist in Germany and Australia, moved to Canada in 1973 as a senior geologist and Project Manager for Uranerz Exploration & Mining Ltd. (UEM), conducting uranium exploration in the Athabasca Basin.

Dr. Tan was instrumental in the discovery of the Key Lake uranium deposit and the development of the Key Lake Mine which produced 195 million pounds of U3O8 at a grade of 2.5% over a fifteen year mine life from 1983 to 1997. After the development of the Key Lake Mine, Dr. Tan continued to supervise UEM’s uranium exploration and drilling programs in the Athabasca Basin, including regional exploration in the greater Key Lake area. Dr. Tan monitored the exploration and diamond drilling of UEM’s joint ventures with Cameco Corporation at the McArthur River, Maurice Bay, Millennium and Rabbit Lake deposits until all uranium property and project interests were sold to Cameco in 1998.

Why Learn to Trade Stocks?

Stock trading has numerous benefits as a viable part time occupation.

In contrast to a second job, there are no special qualifications to begin. The stock market doesnt care about your level of success, education, ethnic origin or any personal characteristics. Complex employers, office politics or difficult employees do not play a part in trading. Additionally you have the freedom to trade from any location. If you follow a few simple rules you can run your business on your own terms.

The most important factor is to be clear about why you want to trade stocks. What do you hope to gain financially from learning to trade?

Are you looking to:

1.Create an enhanced lifestyle with supplemental income?

2.Replace a full time income with a passive income stream?

3.Become independently wealthy by creating a financial base independent of other income sources?

What would being a successful trader mean you? Imagine yourself making successful trades and gaining financially. Think about what it would feel like to have extra money in your bank account and to achieve your targets. With a clear picture of what you want and how that would feel you will be able to remain focused and motivated.

Your first task.

Your first task is to put one primary goal for your trading plan in writing. Additional goals you set can then support your primary plan.

Know Yourself

As well as learning to trade stocks it is essential that you understand yow you react under stress. Being aware of your own behaviour patterns and common causes of and reactions to stress when trading will help you to master stock trading.

The reason that many people lose money in the stock market is because they lack the proper knowledge base. Independent of trading styles there is one thing common to all successful traders; the use of a tested and proven system.

In learing to trade you must be willing to let go of pre-formulated ideas and start fresh, develop new successful habits, and the discipline necessary to trade successfully over time.

Are you willing to do this?

Successful stock market trading eludes many people because they dont have contact with an experienced, successful trader or trading system that actually works. Going it alone can be potentially expensive when learning by trial and error. Investing in a solid education and taking advantage of the insights and experience of successful trader makes a lot of sense when learning to trade successfully.

Why Land Beats Stocks And Shares

As small investors look for ways to ensure a good return on their money, land sales are increasing in popularity. Profits, whilst not guaranteed, are often better than those from the stock market, for several reasons:

Less risk, more profit

Whilst some investors have a significant investment in the stock market, often with a comprehensive, well-managed portfolio, for most smaller investors, their experience of the market is limited to one or two companies and they are therefore more open to stock market fluctuations and risks. Company share prices can be affected by many external factors, often beyond the companys control and, unless you are watching the market carefully day by day, you usually have to hold onto your shares for many years in order to turn a good profit.

By contrast, if you select the right land, or take the advice of a reliable land agent, you can realise potentially fantastic profits in a much shorter space of time. This is because the land thats normally made available to smaller investors has been carefully chosen. Big land investors buy and then bank land that they think will be ear-marked for development in the future, and then either hold onto it, or parcel it up and sell it to private investors, who reap the benefits if planning permission is granted at a later date.

No maintenance required

Once youve bought your piece of land, you own it outright and can sell it whenever you choose. You dont need to maintain it as you would a property and you dont need to follow its fortunes day in, day out, to find out whether youre making any money. If you need to raise money, you can sell your land quickly, whereas if your shares are at a low price, you wont be able to make enough cash.

The best of both worlds

If you have thought of investing in land, but dont want to get out of the stock market completely, then just broaden your portfolio by reducing your shareholdings and investing in land as well. You get the best of both worlds, and the chance to make a very health profit if you choose the land wisely.

Why Is Eric Sprott A Uranium Bull?

Eric Sprott may be Canada’s answer to Warren Buffet. He’s got the Midas Touch and currently manages more than 3 billion. We talked to Eric Sprott about uranium and why he is bullish on nuclear energy.

Interviewer:
Uranium had been inching higher from 2001 until a year ago. Since then, it has soared up the price chart. What is a realistic price for uranium and how high can you envision it reaching?

Eric Sprott:
There is obviously a shortage between current mine production and current uranium consumption. In order to correct that imbalance, it would have to be economic to open up new deposits. Im not suggesting that it (uranium) has to go to 100 to become economic. I dont think thats true. Probably at 50, it becomes very economic. The reality is that weve been so slow in getting started that I think the whole nuclear industry will ultimately prove to be the key energy source of the future. With demand today at 170 million (pounds), who knows? It might be 300 million pounds in twenty years. The argument in the article we wrote is that based on the previous peaks, prices if you put a normal inflation rate on it, it would equate to something like 100. So, its not that far fetched that we might get there.

Interviewer:
If it takes four or five years, or up to a decade, to get a nuclear reactor going, why are the Chinese building so many so quickly?

Eric Sprott:
Because theyve been doing it right. One of the nice things about a centrally organized government is they deal with big issues. Obviously, China has a big issue in energy. If you were sitting over there, you would realize, My god, were starting to import two million barrels of oil. We used to export coal and now we dont export coal. What are we going to do if our growth rate continues to grow at eight or nine percent per year? How much power are we going to need? And where is it all going to come from when there are already shortages of the two most commonly used energy sources in the country?” The option you fall back on is, Well, lets go nuclear. We have to go into all of them. And of course, now theyre predicting two nuclear reactors every year for the next ten years. Who knows? Maybe five years from now, that will be four reactors every year. Perhaps when we all realize the extent of the energy shortage.

Interviewer:
How is this going to be sold to North America and Europe in the wake of Three Mile Island and Chernobyl?

Eric Sprott:
The way things might change is now that we have 50 oil, and the price is almost going up in an unlimited fashion. Now that weve got coal at double and uranium thats gone up, people might finally realize there is not an infinite supply of certain things that we rely on. And that we might have to take a more pragmatic view of the nuclear option. Im sure that is exactly what certain countries, including Japan, China and France, have done. The other thing is that there is a new reactor where you cant have a meltdown. Im not technically strong enough to explain it. The uranium is in graphite spheres, and they wont melt down unless temperatures reach 2000 degrees. The highest it ever goes to is 1600 degrees so its just not going to melt down. It doesnt matter if things are out of control. They wont break down. If that kind of assurance were accepted by the public if someone could prove that that was the case I think the nuclear option would be an incredibly viable option. Another thing that would make people think differently would be having brownouts for a while, or hyperinflation because of the shortage of coal, natural gas, and diesel fuel. If we had brownouts for a while, and of course they have brownouts in China, which is probably why they are proactive in moving nuclear along.

Interviewer:
How realistic is the global energy crisis moving toward a Hubberts Peak, an energy scenario from the year 1970?

Eric Sprott:
My view is that it seems very realistic. I think it is very important that we do go back to 1970. Look at the fact that Hubbert said in 1956 that 1970 will forever peak out (in terms of energy production). Lo and behold, it peaked out! It almost goes down every week in the United States. Almost every week, there is a little less production. This is now with very high oil prices. It looks like his theory, for the geographical area called the United States, worked. Do we think it is going to work in the world? I tend to believe it is. I believe there are projections for Great Britain, which I think are at about 4.2 million barrelsday right now, that in ten years from now, will be down to 700,000. Thats what happens when fields go into decline. They go down, and you can not resuscitate them. Everyone who studies the topic knows that no significant discoveries have been made since the 1960s. What I mean by significant are giant oil fields like Ghawar. For example, people now consider a 100-million barrel field a big deal, and 500 million is great. Well, one hundred million is like 1.2 days of worlds supply, and 500 million is eight days supply. You have got to find a lot of those every year. We dont find them. We have hardly found anything. The Caspian Sea? I am guessing it is 500 to 700 million. Its the one thing we point to, the thing in the Caspian Sea, which we have been pointing to for the last three years. Lets say it is 800 million barrels, it is ten days supply. Its nothing.

Interviewer:
There have been some pretty incredible estimates as to how high oil can go. The highest were read of stands at 182 for a barrel of oil and 15 per gallon of gasoline. Your comments?

Eric Sprott:
When you get into any commodity, where there is a bonafide shortage, there is no limit on the price. There is hardly any limit on the price. Because that last guy still wants that last barrel of oil. I always say, when a commodity is starting to break loose, Never put a ceiling on it because you never know where it is going to go. You look at what is going on in the world oil situation. If I was (in charge of ) certain countries, I would probably be changing what Im doing. You can see China going throughout the world signing agreements with countries to assure oil supplies. Its a government mandate to go out and secure their supplies. I think people at the government level realize, We have issues here that we have to solve. If we dont have assurance of supply, what happens? One thing about Hubberts Peak that most people dont go to is the economic impact. Forget the price of oil. What if we produce 83 million barrels today, and in 25 years we have 55 million barrels? What is the world going to do? Do we just have to shut down economies because we dont have a replacement for hydrocarbons?

Interviewer:
Do you think the world governments are prepared for this?

Eric Sprott:
Not at all. They show no interest. In fact, I would say one of the real problems with the democratic process is, unfortunately, too much time is spent thinking about politics. Hardly any time is spent planning for the future.

Interviewer:

On uranium, you recommended a number of uranium companies in your special report. Cameco (NYSE: CCJ) seems to be the one many recommend. Other uranium companies seem to be in the exploration or the more speculative category, and now have some momentum because of the bull market in uranium. How strong are the fundamentals in those companies?

Eric Sprott:
I think the fundamentals for some of the companies are spectacular, quite frankly. Its interesting for us because we had the same thing happen in gold, when the price of gold was 250. We tried to imagine what we should buy if, and when, gold went to 400, which we thought it would, or 500 or higher. The real opportunity always lay in, Well find someone who has a large resource that is uneconomic today, but if you move the price up, it becomes quite economic. I would say Strathmore (TSX-V: STM). They have a large resource already identified. In fact, they are acquiring properties all the time that were identified years and years ago. Yet, at 20pound uranium, they probably dont make any sense. But, at 40pound uranium, they are likely to make tremendous economic sense. Of course, the value of the shares can almost not go up exponentially but they can go up a lot. You finally tip over that breakeven level, and everything after that is profit. We had an analogy like that in gold area, where one guy went out and bought all these deposits that would make sense at 400 gold. The stock has been a tremendous winner. I think it is up 500 percent. I think the same can happen in uranium. Thats why we go to Strathmore and UEX (TSX: UEX). There are a couple drilling in Saskatchewan: JNR Resources (TSX-V: JNN) and International Uranium Corporation (TSX: IUC).

Interviewer:
How do you feel about precious metals?

Eric Sprott:
We feel pretty good about precious metals. Weve been pretty bullish for quite a while now. We have liked the fundamentals for gold for a long time for any one of ten different reasons. The one reason I fall back on, that gives me tremendous comfort, is the fact the world consumes 4,000 tons of gold per year, but mine production is 2,500. Anybody who uses any bit of logic knows, in due course, the price will go up to reflect the imbalance between demand and supply. I dont care how much gold Central Banks sell, ultimately they are going to have no gold. I think people realize that Central Banks have made a big mistake selling their gold.

Interviewer:
The China card keeps driving global commodities as they bring their country more technology. How do you feel about the base metals?

Eric Sprott:
We havent really gotten involved in the base metals. One of the reason we havent gone there is we have believed we are in a secular bear market, and there could be a financial implosion. In that kind of scenario the base metals dont do well. But the precious metals can provide safety. Thats the distinguishing mark we make between the two. On the China thesis, the demand for all of these things would go up. Our problem is we still expect some fallout in the financial arena, which ultimately would even affect China. We feel more comfortable with the precious metals, and we feel more comfortable with energy. Simply, energy demand in an economic implosion is pretty inelastic. It doesnt fall off the table. Demand for zinc, lead, copper, and aluminum can fall quite precipitously if there was an economic slowdown.

Interviewer:
Are you expecting an economic slowdown?

Eric Sprott:
Absolutely, yes. We might be in it now. There are certainly lots of signs that there is not much robustness in the U.S. economy. I have some very strong views as to what should ultimately happen in the U.S. My views are predicated on the fact that the government reports a deficit of 400 billion, but there are also government reports that suggest, on a GAAP accounting basis, that the true deficit in 2003 was 3.4 trillion. We can all ignore it, and everyone has ignored it. But, the reality is that the liabilities are accruing for Social Security and Medicare in the U.S. at a tremendous rate. There has been no provision for it. There was a paper released by the U.S. Treasury Department about a year ago that said the present value of their obligations, that are not funded, is 44 trillion. Again, we can choose to believe it or not believe it. I happen to believe it. I made the point that politicians are in it to be re-elected, and they are not dealing with the real issue. The real issue is they are making promises to their citizens that they cant keep. And theyre not going to keep them. I would hate to be a retired person or a young person in the U.S. Somebody is going to have to bear the brunt of all these funding issues that havent been taken care of. Beginning in 2008, the baby boomers start collecting these things. Thats a real cash problem. Before, it was just a bookkeeping problem. Youll have a huge influx of people collecting their Social Security and getting free Medicare. Its got to be funded. Anyone whos looked at the problem has agreed that no one has done anything about funding it. You have to cut what your promises were, which is what all the European governments are now trying to do. Theyre all cutting back on the pension. Most companies are cutting back on them because they cant fund them. The trend is in place here: What we thought we were going to get, were not going to get it. Am I bearish? Gosh, weve had forty years of living off of savings that were supposed to be saved to provide this future. It was all spent. Everyone just chooses to ignore it.

Eric Sprott

Founder and Chairman of Sprott Securities Inc., Toronto, one of Canada’s consistently top-ranked investment firms. After earning his designation as a Chartered Accountant, Eric entered the investment industry working in research as well as institutional sales. In 1981, Eric founded Sprott Securities Limited (now Sprott Securities Inc.) which, under Eric’s leadership, has become one of the most successful investment firms in Canada.

Eric Sprott has established himself as a clear leader in Canada’s investment community. With over 30 years of industry experience, his expertise at making predictions on the market and recognizing investment opportunities with superior growth potential have been proven many times over. His investment abilities are clearly demonstrated by the excellent performance track record of Sprott Managed Accounts, Sprott Canadian Equity Fund and the Sprott Hedge Fund L.P.

At the 2003 graduation, Eric Sprott, President, Sprott Securities Ltd. and Carleton alumnus for whom the Sprott School of Business was named after, was awarded a Doctor of Laws, honoris causa by Carleton University in recognition of an outstanding career as an entrepreneur, investor and philanthropist.

Why Buy Stocks on Margin?

Buying on margin means that you are buying your stocks with borrowed money.

If you are buying stocks outright, you pay 5,000 for 100 shares of a stock that costs 50 a share. They are yours. You’ve paid for them free and clear.

But when you buy on margin, you are borrowing the money to purchase the stock. For example, you don’t have 5,000 for those 100 shares. A brokerage firm could lend you up to 50% of that in order to purchase the stock. All you need is 2,500 to buy the 100 shares of stock.

Most brokerage firms set a minimum amount of equity at 2,000. This means that you have to put in at least 2,000 for the purchase of stocks.

In return for the loan, you pay interest. The brokerage is making money on your loan. They will also hold your stock as the collateral against the loan. If you default, they will take the stock. They have very little risk in the deal.

One way to think of buying on margin is that it is often comparable to buying a home with a mortgage. You are taking out the loan in the hopes that the value will go up and you will make money. You are in control of twice the amount of shares. All you have to see is the additional profit exceed the interest you have paid the brokerage.

However, there are risks to buying stock on margin. The price of your stock could always go down. By law, the brokerage will not be allowed to let the value of the collateral (the price of your stock) go down below a certain percentage of the loan value. If the stock drops below that set amount, the brokerage will issue a margin call on your stock.

The margin call means that you will have to pay the brokerage the amount of money necessary to bring the brokerage firms risk down to the allowed level. If you don’t have the money, your stock will be sold to pay off the loan. If there is any money left, you will be sent it. In most cases, there is little of your original investment remaining after the stock is sold.

Buying on margin could mean a huge return. But there is the risk that you could lose your original investment. As with any stock purchase there are risks, but when you are using borrowed money, the risk is increased.

Buying on margin is usually not a good idea for the beginner or normal, every day investor. It is something that sophisticated investors even have issues with. The risk can be high. Make sure that you understand all of the possible scenarios that could happen, good and bad.

Why are Reverse Mergers Often the Victims of Short Sellers?

Why are Reverse Mergers Often the Victims of Short Sellers?

There is a great deal of abuse going on in the OTC Bulletin Board Market and a lot of money is being made as result of it. Regulators are trying to deal with the problem but are unable to put a halt to it, unless they take drastic steps which will be detrimental to the small and micro-cap market.

The small and micro-cap market is an essential part in bringing small and mid-size companies public through Reverse merger and Regulation D (504) offering, these are the two most popular methods used by small and mid-size companies to go public.

This two avenues are prefer by small and mid size companies because they simpler and less expensive than the traditional IPO, It can be refer to as a simplified fast track method by which a private company can become a public company.

I described the process in detail how small and mid-size companies can go public in previous articles, if you miss them, you can email me and I will be happy to explain it.

I have over 25 years of experience in the securities industry as market maker and trader. In my own brokerage firm and with a couple of the largest wholesalers in Wall Street. I believe my experience qualify me to write on the subject with clarity and honesty from a birds eye view.

I believe in short selling as a legitimate way of providing liquidity to the market as an essential part market making, that is not what I am referring to.

A short position is established when somebody sells a stock they do not own hoping to be able to buy it bac at a later day for a lower price.

There are several reasons why selling short the stock of companies that have gone public through a reverse merger is profitable and easy, I will identify them and suggest ways that this can be stopped once all for all without affecting the legitimate short seller who are willing to sell and bear the risks associated with carrying a short position. Reason number one (1). Corporate shells, in order for an operating private company to go public in a Reverse merger it must merger with a public shell. A public shell is what remains when a public company is bankrupt or liquidated, also some shell are created as Blank Check companies,

A Blank Check company has shareholder and maybe some cash in its books but nothing else, they are created by enterprising entrepreneurs for the sole purpose of merging an operating private company into it.

What happens is that when the shell owner sell the shell to the private company he retains 5-15% of the shares for himself, on top of collecting any where upward of 500,000.00 for himself. And even if he signed and agreement not to sell for a year, most of these people can not be trusted and will at some point dump the stock or have somebody create a short position in their behalf.

Solution: The shell owner must be made to sell the entire position and be content with the money, which in most cases represents an enormous profit. I dont have anything against anybody making a lot of money, I am all for it because I also stand to make a lot of money, I am against the way they do it.

(2).The shareholder base: In order for a company be listed on the NASDAQ Small-Cap market or the OTC Bulletin Board it must have a specified number of shareholders to qualify for listing.

(2A).Improper due diligence: Prior to purchasing a shell the private company along with the consultant that they retain to assist them in the Reverse merger should do a complete review of the shareholder list. some of those shareholder may have excessive number of shares and the true beneficial owner may be the shell owner or the consultant himself, there are a lot of smooth talking wolves posing as consultant who are operating in conjunction with the shell owner.

Solution: First run the consultants named and his previous employer through google and see if he has been convicted of any securities related crimes and has been barred from participating in any stock related transactions. Second write the regulator and request that consultants be required to have a website with their name on it, most of this unscrupulous character operate in a stealth manner so that regulators cant detect their activities.

Petition the Securities and Exchange commission requesting a reduction in the number of shareholders require for listing, and if a shell has too many shares outstanding dont buy it!

(3),Market Makers: Market makers in OTC Bulletin Board Securities are permitted to maintain a short position in securities that they are acting as market makers, but what some trader do is they register for a stock and go out sell stock on the bid (the price other market makers are willing to pay) and immediately cease to make a market in the stock and keep the short position.

Technically when a trader does this, he is circumventing the intent of the rule which allows market makers to short a stock in his role as a market maker.

Solution: Require traders to remain acting as market makers until they purchase the stock back, also regulators must make clearing agent to enforce the rules concerning the delivery of the securities on settlement or execute a buy in (buy the stock back and charge the seller) if the seller fails to deliver the stock within the prescribed period of time.

I believe that these reforms will go a long way in altering the climate for participant in Reverse merger, and in removing the vultures the prey on unsophisticated business owner from the market place.

But until the regulators act the responsibility is on the business owner to perform the proper research, if I sound like a crusader maybe that is because the industry has been good to me and I hate to see the vultures taking it over.

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