The company provides services to a broad range of commercial, industrial, utility and institutional customers. They report operations in six market segments: (a) electrical construction and facility services within the U.S.; (b) mechanical construction and facilities services with the U.S.; (c) U.S. facilities services; (d) Canada construction services; (e) United Kingdom construction and facilities services; and, (f) Other international services. The electrical construction and facilities segment involves systems for electrical power transmission; premises electrical and lighting systems; low-voltage systems, such as alarm, security and process control; voice and data communication; roadway and transit lighting; and fiber optic lines. Mechanical construction and facilities services include systems for heating, ventilation, air conditioning, refrigeration and clean-room process ventilation, fire protection; plumbing, process and high purity piping; water and waste-water treatment and central plan heating and cooling.

Consensus estimates for sales ending 12/09 are projected to be $7,246.88 million. Consensus EPS estimates for the same period range from $2.28 to $2.65.

Sales growth is 24.8% YOY and EPS growth is 45.1% YOY. The historical five year growth rate for sales is 8.4% and for EPS it is 13.2%. The company reported positive earnings surprises for the quarters ending 10/08 and 07/08.

At its recent price of $20.72, EME is selling at 7.9X next year’s estimated earnings. Operating margins have steadily expanded from 0.9% in 2004 to 4.2% currently. Similarly, net margins have grown to 2.5% from 0.7% in 2004. The company does not pay a dividend.

Our estimate of fair value is $29.97 to $48.96 with a mean value of $41.97. Using consensus EPS of $2.58, EME is valued at 11.6X to 18.9X earnings; the average fair value multiple is 16.27X earnings. The low end of our estimate provides a PRG ratio of 0.88, based on historical growth rate.

Good Article? Pull it from here:
EMCOR GROUP, INC. The Rebuilding Of America

The company reported FY 08 earnings per share of $14.90 compared to $10.90 for FY 07, representing a 36.73% increase. EPS for the MRQ is reported at $3.55, down from $3.59 in the December 07 quarter. Sales are up 41.92% from $636.308 to $903.017 for the year. The five year growth rate for sales is 17.73.

Gross margins have expanded to $47.84%, well above the five year average of 29.01%. Net margins are hight at 46.77%, also well above the five year average of 27.33%.

Are these high growth rates sustainable? Current, fast-changing prices of agricultural commodities and fertilizers make it risky for farmers to invest in fertilizers. In many countries, it is anticipated that distributors and farmers will experience trouble in accessing credit to purchase agricultural inputs, including fertilizers. Where there are sufficient phosphorus and potassium reserves in soils, farmers are likely to rely temporarily on the reserves. Nitrogen should not be as greatly affected.

Nitrogen supply/demand conditions are tight, driven by strong nitrogen fertilizer demand worldwide. Production outages in exporting countries and delays in the commissioning of new capacity further tightens supply. World grain stocks remain at a record low despite two good consecutive harvests in 2007 and 2008. Projections by the Food and Agricultural Organization of the United Nations and the US Department of Agriculture point to a modest recovery in 2009.

We construct our estimate of TNH’s value by developing risk-adjusted capitalization rates for our estimate of free cash flow. The reciprocal of the capitalization rate is the Price/Free Cash Flow multiple.

Risk Premiums
Market Value of Equity 11.65%
Book Value of Equity 13.57%
5-Year Average Net Income 11.19%
Market Value of Invested Capital 2.78%
Total Assets 14.02%
5-Year Average EBITDA 12.23%
Sales 12.83%
Number of Employees 15.68%
Average Operating Margin 9.36%
Coefficient of Variation of Operating Margin 14.31%
Coefficient of Variation of Return on Book Equity 12.75%

Mean Risk Premium 12.76%

Projected Free Cash Flow per Share $35.04
Projected Average Valuation $274.61

Disclosure: The author has no financial interest in TNH

Good Article? Pull it from here:
Terra Nitrogen: Food for Thought

How do you put a happy face on that? Easy, according to the folks at Casey Research. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.

Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.

The meeting in Russia, to which the US was pointedly not invited but did include the “re-elected” President of Iran, is expected to focus on the world monetary crisis and the dollar’s role in it.

Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.

Those interested in accumulating some of the precious metals version of “Natural Resources” might consider the gold and silver ETF [GLD: 108.36, +0.41 (+0.38%)] and [SLV: 16.74, -0.02 (-0.12%)] or the Market Vectors Gold Miners ETF [GDX: 44.94, -0.05 (-0.11%)].

Crude oil dipped on Monday and hit an intraday low of $69.58 a barrel on the Globex. On Tuesday as I write this it’s back to $71 a barrel.

One might have expected something of a rally off of the post-election turmoil in Iran, but that was downplayed in favor of concern over the supply glut.

“The first reason [for the oil retreat], of course, is the resurgent dollar,” said Phil Flynn, of Alaron Trading. “Then we got the Empire State manufacturing number that was much worse than expected, and that put pressure on oil.”

The Empire State index fell to negative 9.4 in June from negative 4.6 in May, indicating the downturn is widening to affect more firms, according to a report released yesterday by the New York Federal Reserve Bank.

[We are becoming more of a "Black Swan Investor" which is explained in our special report, "Fives Secrets to Creating Wealth in a Financial Crisis" which you can subscribe to by going to our home page and submitting your name and email in the sign-up section of the right-top quandrant of the home page.]

The bigger picture: “Stocks of oil are high all around the world — which suggests that on a supply/demand basis, oil prices should fall,” said James Williams, of WTRG Economics. “However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation.”

This doesn’t mean we won’t see wild price swings in oil and the oil ETF [USO: 38.83, -0.68 (-1.72%)] in the weeks and months ahead. We might see a trading range develope between $60 on the downside and $75 on the topside.

“Commodities in general are seeing pressure as funds and individuals seem to feel that everything is overbought at this point,” said Zachary Oxman, managing director at TrendMax Futures. And, “Oil specifically seems strongly overbought.”

Commerzbank analysts concurred, writing that, “As the market was pricing in a rapid economic recovery, we think that the probability of a significant correction, taking place as early as in the coming weeks, is very high.”

But, of course, analysts have been saying that for weeks now, and crude has stubbornly resisted any big move to the downside.

Today brings the Energy Information Administration’s closely-watched stockpile report, and inventories are apt to decline again, says Linda Rafield, Platts senior oil analyst.

If you’re looking for a Natural Resources Exchange-Traded Fund that focuses mainly on energy, take a look at the iShares S&P North American Resources Fund [IGE: 34.36, -0.54 (-1.55%)].

IGE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P North American Natural Resources Sector Index.

Over 79% of the holdings are in the energy sector, and includes names like Apache [APA: 104.32, -2.53 (-2.37%)], Canadian Natural Resources [CNQ: 71.84, -1.48 (-2.02%)], Chevron [CVX: 73.57, -0.15 (-0.20%)], ConocoPhillips [COP: 51.65, -0.03 (-0.06%)] and Schlumberger [SLB: 64.31, -0.23 (-0.36%)].

As of the end of April the only precious metals company in the “top ten holdings” happened to be Barrick Gold [ABX: 39.01, -0.05 (-0.13%)].
Concerning ENERGY AND THE NATURAL RESOURCES MARKET
Last Saturday Frank Holmes of US Global Investors wrote the following review which is very insightful.

World oil reserves fell for the first time in ten years, according to BP’s annual Statistical Review of World Energy. Concurrently, the International Energy Agency (IEA) also stated that global energy investment is “plunging.” Projects worth $170 billion have been cancelled so far this year, equating to a loss of 2 million barrels per day (bpd) of oil production capacity. This is a concerning development given that the IEA forecasts global petroleum demand to rise from 85 million bpd in 2006 to 107 million bpd by 2015.
Strength

* The IEA revised its global oil demand forecast upward to 83.3 million bpd. Additionally, the Department of Energy’s EIA recently increased its global crude demand estimate.
* May imports of unwrought copper & copper products into China increased 6 percent sequentially and 113 percent from a year ago to 422,666 metric tons.
* The American Iron & Steel Institute said steel utilization rates increased for the week ended June 6. This is the sixth consecutive week, with the rate at 47.1 percent versus the prior week of 46.2 percent, but down from last year’s 91 percent.

Weakness

* BHP announced that it has settled benchmark metallurgical coal prices at prices around $128 per metric ton, which is approximately 55 percent lower than last year but in line with previous indications.
* Global stainless steel production declined more than a third to 4.8 million metric tons during the first quarter of 2009 according to the International Stainless Steel Forum.
* Gold Fields Minerals Services estimates that China’s consumption of copper should rise by 4.9 percent this year. However, even if that figure were to be 11.2 percent, the world would still face a surplus of copper in 2009.
* Canada’s principal energy producers have lowered their estimate of oil-sands output for the third time in a year, due to project delays and cancellations caused by falling crude prices and scarce available credit. Oil-sands production is now expected to come in at 1.9-2.2 million barrels per day in 2015.

Opportunity

* Iraq is looking to boost the output of its southern oil fields by as much as 500,000 barrels of oil per day by 2011. There are currently ongoing talks with major foreign companies to solicit help in reaching the goal.
* The Nigerian National Petroleum Corporation intends to increase Nigeria’s natural-gas production by 5 billion cubic feet per day or 147 percent by 2013. The country expects to spend $5 billion in the natural gas sector beginning this year in an effort to double its power-generation capacity to 6,000 mega watts.

Threat

* The IEA has calculated that investment in over 2 million barrels per day of oil and over 1 billion cubic feet of gas have been cancelled in the last six months. It is warning that sustained lower investment could lead to a spike in prices in only a couple years.

We are all hoping for a correction in Natural Resources prices this summer. Although I’m trying to be careful what I wish for, in the longer-term any corrections will most likely be looked at as favorable accumulation points.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

- Marc Courtenay

Disclosure: The author is long GLD and SLV. This article was taken with permission from Check the Markets. All other disclosure questions should be referred to the original author.

The Company provides investors a vehicle to invest in a portfolio consisting primarily of the stocks of companies engaged in the exploration, mining or processing of gold, silver, platinum, diamonds or other precious minerals. It may also invest in gold, silver and platinum bullion or securities that seek to replicate the price movement of gold, silver or platinum bullion.

To coax you to read this article carefully, I’m going to reward you towards the end of the article with Mr. Christensen’s prediction concerning the prices of gold and silver going forward. You might be surprised by what he said.

I asked him,”Do you choose the portfolio for ASA Ltd. and serve as the portfolio manager?” His answer was an unequivocal “Yes”!  And he has the experience to do so competently.

Mr. Christensen, before being named CEO in February 2009 was Vice President – Investments since May 2007. Before joining ASA Ltd he served as Vice President, Corporate Development of Gabriel Resources Ltd. 2006 to 2008; was an independent financial consultant from 2003 to 2006;  a former Director of Fundamental Equity Research for Credit Suisse First Boston from 2002 to 2003; and former First Vice President, Global Coordinator of Mining Research at Merrill Lynch 1998 to 2001 and Precious Metals Analyst at Merrill Lynch from 1994 to 1998.

As an analyst, Mr. Christensen earned numerous awards from the Wall Street Journal, StarMine, Institutional Investor Magazine, and Reuters for his research and investment recommendations.

I asked him about the unbelievable volatility we are experiencing in gold and silver investments. He believes one of the big reasons is that the US dollar doesn’t have the same benchmark status it has had in the past. “The rise in the commodity prices reflects in part, the decrease in the demand for the dollar. Commodity prices have become a sort of surrogate currency, especially gold. China is a buyer of commodities, and they are diversifying foreign reserves into gold and metals.”

Then I explored with Mr. Christensen the subject of silver and asked about the silver exposure in ASA’s portfolio. He said they invest in silver more indirectly by owning shares of companies like Agnico-Eagle [AEM: 57.99, -0.35 (-0.60%)] and Goldcorp [GG: 39.09, -0.21 (-0.53%)] which produce a great deal of silver, often as a byproduct.

Concerning silver miners he said, “We don’t own a lot of primary silver companies. We don’t own any Silver Wheaton [SLW: 15.32, -0.14 (-0.91%)] either because it’s more like a bank… they purchase royalty rights. They finance upfront promising silver development projects. We’d rather own the iShares Silver Trust [SLV: 16.74, -0.02 (-0.12%)] which reflects directly the movement of the price of silver.”

I asked, “Does ASA directly own the physical metals ? He surprised me by saying “There is no physical metal in the ASA portfolio right now. From time to time we own some Spider GLD ETF [GLD: 108.36, +0.41 (+0.38%)]: it is easier to move in and out of and simplifies our operating costs and custodial requirements.”

I was curious to know if he felt safe using ETFs, so I asked, ” Do you have any “trust issues” with ETFs like GLD and SLV?” Mr. Christensen answered, ” For short-term needs, very few. none at all. It’s the most convenient way to buy and sell in relationship to the underlying metals.”

He reminded me that, “the gold that GLD own and has stored is segregated in a similar manner to The Central Fund of Canada [CEF: 13.92, -0.01 (-0.07%)]. CEF and GLD both have quality custodians.”

Back to ASA, I recommend you read its web site’s explanation of its history. The web site is easy to read and nicely designed. Go to http://www.asaltd.com/about/company.asp to learn more.

Then I asked Mr. Christensen, “Why do ASA shares often sell at a discount to NAV?” He replied, “A better question is ‘Why do all closed-end funds seem to trade at a discount to NAV? With ASA, it is because many investors now prefer to buy gold and precious metals stocks directly, so our share price reflects a built-in discount to reflect that factor.”

He went on to say, “The board and management review the discount each meeting and are working to reduce it. Clearly, we would rather it didn’t trade at a discount. The Company has committed to conduct tender offers during the next two years to buyback shares close to NAV when the discount exceeds 10%.  Last year, the company repurchased 25% of its shares at 98% of the NAV.”

From an investors perspective, when we buy shares of ASA we get to buy the same quality portfolio of holdings at a discount, plus we receive the professional management of the portfolio. Also,institutions and companies like ASA Ltd have the ability to participate in private offerings, convertible offering and can purchase investments with  lower commissions than retail investors receive.

Mr. Christensen explained, “We have securities in the ASA portfolio that are difficult for retail investors to acquire. Also, because ASA is a closed-end fund, we aren’t vulnerable to the ‘volatility of our cash position’ and to liquidation pressures in the same way an open-ended fund is vulnerable. Open-ended funds have a lot of turnover of their portfolio. We have a much lower turnover of our portfolio.”

ASA has never issued new stock since initial offering back in the late 1950s, when it began with approximately $25 million worth of shares. Mr. Christensen said that ASA has no plans currently to offer new shares going forward.

So with ASA shares we the investor don’t have to be concerned with what I call “the dilution factor”. The value of our shares won’t be “watered down” by secondary offerings.

As mentioned, ASA’s directors are more likely to do tender offerings whenever the value of the shares are selling at more than a 10% discount to NAV. Thus reducing the number of shares outstanding and making those shares that are left in the marketplace more “precious”.

Now concerning Precious Metals Prices:  I asked Mr. Christensen for his best educated guess—where will the price of gold and silver be a year from now.

He answered by mentioning that at the annual shareholder meeting they sponsor a “where will gold’s price be in a year game”. Mr. Christensen said the same investor has won for three years in a row and “shes a long-term retail investor”.

He didn’t want to give a numeric guess himself as far as where the prices of gold and silver will be a year from now, he just said he had every reason to believe it will be “considerably higher”.

Mr. Christensen concluded our interview by reminding me of an old saying and an insight about himself.  “I’m not a gold bug …gold bears make money, gold bulls make money, but gold bugs get squashed”.

“The global spending levels by governments, declining production globally, longer time periods needed for new projects, increased investment demand, and rising production costs, are all favorable for the price of gold”, he added.

The CEO of ASA is both intelligent and experienced, and to top it off he’s a good communicator. He told me that the current board of directors will continue their tradition of being “pro-shareholder and investor-friendly”. The company is becoming much more active in portfolio management, careful research and investor relations.

I also asked him about his “selling disciplines”. After helping me to remember that ASA has an obligation to stay invested, when it comes to individual holdings “I take it on a case-by-case basis” he said.

So I just had to ask him, “How do you determine that an individual stock’s price is getting ahead of itself?” He said there are a number of fundamental factors, but he added one I hadn’t thought of.  “When companies themselves are issuing additional shares, it’s not because they think their shares are under-priced.” Hint, hint !

ASA is a PFIC (passive foreign investment company). So Mr. Christensen stated, “Investors should know that the best place to hold an investment in ASA is in an IRA or a retirement account.” For more concerning this see their web page on that topic http://www.asaltd.com/investor.asp .

Having been an investor in ASA Ltd. shares on-and-off for more than 25 years I was already very impressed by this closed-end fund. To be able to buy a diversified portfolio in the precious metals sector at a nice discount to its Net Asset Value and to also receive the professional portfolio management that someone like David Christensen brings to the table makes ASA a very compelling investment.

If you are interested in more information or would like to receive email notifications on ASA Limited financial information and disclosures you can go their link at: http://www.asaltd.com/Tools/ContactManager/frontend/contact_register.asp?reset=1

Mr. Christensen said they plan on sending out regular updates, and if I heard correctly, perhaps a newsletter for interested investors and shareholders.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will

-Marc Courtenay

Disclosure: Due to the shares of ASA recently hitting my price target of $70 a share, I decided to sell the shares in my personal accounts. I have placed orders to buy the shares back as soon as a correction I’m anticipating occurs. If that correction doesn’t materialize I’ll be sorry I sold. The 52-week high and low prices for ASA are $89.88 and $31.03.

Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content. This article was taken with permission from CheckTheMarkets.com.

Allow me to share with you an email message I sent to my family today that focuses in on my concerns on this topic. Although this will not be a long article, it is intended to motivate us to think “outside the box” as we slide into the “Sell in May and go away” time of the year. Here’s what I wrote my family today:
“Realizing it is only the middle of May, it might be too early to say “it’s going to be different this year”
when it comes to gold and silver.

“During the past seven years gold and silver always corrected between May and October, sometimes just
a little and sometimes a lot. So I’m suspicious that it hasn’t made some meaningful downside move yet, but I don’t want to be clue-less either.

“Notice the comments from Casey Research which I received today. It addresses the tension and the high level of uncertainty that is floating out there in the world of investing, especially in the precious metals arena.

“It was a second straight day of minor change for the precious metals (Friday), with silver and platinum submitting losses, while gold somehow managed to eke out a modest finish in the green.

“However, gold aficionados had to be satisfied with the results, given that the usual suspects were lined up in opposition, with oil selling off and the dollar moving strongly against the euro. Gold likely got a lift from declining equities.

“For gold and silver, we are going into a win-win situation,” said Ashraf Laidi, the chief market strategist at CMC Markets in London. “When we will have a retreat in the financials and the rest of the stocks, we will have some rotation into metals.”

“In addition, “The core inflation number helped stabilize gold and helped gold up $930,” said George Gero, of RBC Capital Markets.

“That could be meaningful heading into next week, according to Ralph Preston, of Heritage West Futures in San Diego, who predicted that, “A close above $930 could be explosive.”

“Yet more positive statements came from Tom Pawlicki, of MF Global, who noted that, “Gold has been the object of affection for hedge funds and also has paid increasing attention to the dollar lately … That helps explain why gold has rallied both when stocks have risen and fallen.”

“If the funds are moving back into the yellow metal, that bodes very well indeed.”

I was looking at the 6 month technical chart on the Gold ETF [GLD: 108.36, +0.41 (+0.38%)], especially the 50 and 100 day moving averages. Perhaps we’ve already missed the correction, or it happened early this year (notice the downward move that occurred in the beginning of April and has slowly righted itself upward).

It is too early to say that the upside reversal that began at the start of May is going to bring us an “explosive” upward move from here. The message from the major gold mining stocks has been mixed at best.

Companies like Barrick Gold [ABX: 39.01, -0.05 (-0.13%)] and Goldcorp [GG: 39.09, -0.21 (-0.53%)] seemed to have topped out over the past few days and corrected on Friday. Others like Newmont Mining [NEM: 49.73, -0.31 (-0.62%)] are acting more ebullient, but it also started seeing selling on Friday (on lower than average volume which might be another positive).

BOTTOM LINE: This year it actually could be different. There are some very sobering pieces of economic reality that are hanging over the stock market’s (and bond market’s) head such as the horrendous problem with the Credit Default Swaps (super derivatives) market, the little-publicized debacle with the Commercial real estate sector, and the impending collapse of some good-sized banks that people aren’t expecting.

Any or all of these impending and relatively under-anticipated financial nightmares could suddenly cause gold, and perhaps silver also, to take off like an Atlas rocket. Remember, the rush to gold as a hedge against economic “shock-and-awe” can happen faster than we can anticipate or respond to.

“It’s the pit bull-dog you don’t see that bites you, not the one you see” said one trader years ago. Let’s make sure we have enough exposure to gold and silver to benefit just in case it is different this year and just in case the “worst case scenario” becomes our “real world reality”.

How’s your supply of The Central Fund of Canada [CEF: 13.92, -0.01 (-0.07%)], ASA Limited [ASA: 73.92, -0.35 (-0.47%)] which pays a small dividend and the Silver ETF [SLV: 16.74, -0.02 (-0.12%)]? Can a smart investor afford to have too little of such investments (although the answer may be “yes” if you own enough of the physical metals and if you have them safely stored).

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: This article was taken with permission from Check the Markets. The author is long CEF, ASA, SLV, and GLD. Further questions on disclosure should be referred to the original author.

My favorite mid-size gold miner, IAM Gold [IAG: 14.51, -0.10 (-0.68%)] has virtually quadrupled off its low last November and almost doubled in the past 5 months. It’s been a feverish frenzy, an overdue bubble that might be ready to burst.

On March 8th I tried to provoke the gods of Wall Street to create a huge stock market rally by conjuring up the term “Contrarian Contango” as a new term for paradoxically pretending you think the markets are going to keep going down when you sense they are about to go up. It worked beyond my expectations.So now I will create a commodities-based potient called the “Commodities Contrarian Contango” by throwing out the outlandish notion that precious metals, oil and natural gas are going straight up from this point till the Spring of 2010.

In this fantastic proposal, I see the Silver ETF [SLV: 16.74, -0.02 (-0.12%)] racing up to $20 a share, the Gold ETF [GLD: 108.36, +0.41 (+0.38%)] breaking through the $120 mark and the Central Fund of Canada [CEF: 13.92, -0.01 (-0.07%)] going straight up to $15 a share without skipping a beat.

Why it wouldn’t amaze me if the United States Oil ETF [USO: 38.83, -0.68 (-1.72%)] keeps on rising to around $50 a share, and the United States Natural Gas ETF [UNG: 7.98, +0.01 (+0.13%)] surprises everyone and hits $35 a share by December. How about the share price of Exxon Mobil Corp. [XOM: 66.30, -0.50 (-0.75%)]? It’s going straight up to $80 between now and the end of the year.

Why am I making such an absurd group of predictions? Because I’m one of those fools who doesn’t want to buy anymore of those great commodities, companies or names until we have an untimely correction. With my predictive track record (even a broken clock is right twice a day, and I was spot-on once, on March 8th, 2009) if I write that some investments are bound to keep shooting higher and higher it means a correction is imminent.

Just in case my ” Commodities Contrarian Contango” backfires and we find gold, silver, oil and natural gas doing a moon-shot from current levels, I’m going to hold on to what’s left of my portfolio, not to mention the “physical stuff” I’ve accumulated in depositories over the past 10 years.

But for those of us who want to buy more SLV, GLD, CEF, UNG, USO, USL, and DBO, not to mention more ABX,GG, AEM, KGC, GDX, SLW, SSRI, PAAS and my little darling IAG, let’s hope I’ve aroused and angered the Commodity gods on Mount Arrogance and they drive prices lower starting real, real soon.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

- Marc Courtenay

Disclosure: This article was taken with permission from Check the Markets. The author is long SLV, CEF, USL, GLD and some IAG. Further questions on disclosure should be referred to the original author.

With talks about reflation plays being a staple to every portfolio, precious metals and commodities have been all the rage lately. Interestingly, with gold and oil being viewed as traditional safeguards against government spending, which destroys the value of the dollar, it is a wonder that silver has remained hidden for so long.Many of the sharpest minds in the investment world, including  Marc Faber and George Soros, have retained their bullish sentiment on precious metals. While the recent Wells Fargo announcement surprised all of Wall Street and gave glimmers of hope to the global economy, the fact of the matter is that nothing has fundamentally changed with the global financial system and the same systemic risks plaguing markets before remain today.

It is all but an accepted fact that governments worldwide are willing to sacrifice the threat of inflation in order to stimulate economies and boost employment rates. With both gold and silver, demand has been constantly in flux depending on the current prevailing sentiment of risk aversion/appetite. But what makes silver look far more attractive as a store of wealth and a medium of diversification are its unique fundamental factors. With all precious metals, risk aversion sentiment is a huge factor in driving up demand, but silver has seen a significant decrease in inventories and supply pressures. COMEX Dealers Silver Inventory has fallen sharply from nearly 80 million registered ounces at the end of November 2008 to around 70 million at the end of March.

Silver supply contraction can be partially attributed to the difficulties with its production. Silver is mined as a byproduct of base metals such as copper, lead, and zinc. As the industrial production continues to suffer, demand for base metals drop and therefore miners are less willing to mine base metals. Ironically enough, silver and gold demand at these moments increases as investors look to diversify their portfolios and hedge against suffering currencies.

While we have seen price increases in all precious metals, gold is trading at 70 times the price of silver, whereas it has historically traded around a ratio of 30 to 100 over the past three decades. Yet, what is unknown to most is that while gold is priced at 70 times silver, worldwide silver supply is only five times less than the supply of gold.

Unlike gold, which is held in significant amounts by governments worldwide, governments hold only a tenth of their gold in silver; making a sudden and big sale of silver highly unlikely. In fact, including governments and all other major players, Warren Buffet is one of the bigger holders of silver.

Another supply/demand factor affecting silver is that unlike gold, which is seen as solely a store of value, silver has a wide variety of industrial applications that make it indispensable. In fact, over the long term, while the physical stock of gold circulating only increases, silver has a consumption aspect of demand that over time decreases the physical stock of circulating silver. Industrial silver applications include heat and electrical conduction, light reflection, lubrication, alloy, and several biomedical uses as well. Another driver is that future industrial consumption outlook is very positive in that all the new technologies, including solar, battery, laser, and water purification require silver.

With all these factors in line, it is no wonder there are rumors circulating of price manipulation within the silver market. In fact, silver analyst Ted Butler accused giant financial institutions and singled out JP Morgan as the leader of downward price manipulation of silver. While this worked out fine when supplies of silver were still relatively large, the dwindling silver inventories have made price manipulation a huge area of concern and should the price of silver be artificially deflated, there will be a huge upward spike in the price of silver to the market equilibrium.

Regardless of the rumors surrounding silver, one thing is for certain, and that is unlike gold, with constantly growing amounts in circulation, physical amounts of silver are limited and inventories are dwindling. With that in mind, any economist can tell you that silver supply must increase (driving up the price of production and therefore the price of silver) or demand must decrease, which does not seem likely given the variety of its industrial and financial uses.

-Robert Sun

Disclosure: At the time of writing, the author holds no positions in any precious metals.

What Are the Key Drivers for the Refiners?

Most investors are instructed by their financial advisors to avoid the refiners because the business model is tough to understand on a macro economic level.  I generally agree with this advice, and I don’t like the buy and hold strategy when it comes to the refiners.  I do, however, believe that if timed correctly the refiners could lead to some quick profits for experienced investors.  The base of everything that has to do with the refiners what is called the “crack spread” in the industry.  The crack spread refers to the profit margin of the refiners with certain types of inputs and outputs.  For example, one of the most famous crack spreads is the WTI 321 spread, WTI standing for West Texas Intermediate, a form of light, sweet, high quality and easy to refine crude oil.  321 stands for refining or “cracking” three barrels of crude oil into 2 barrels of gasoline and one barrel of distillate (generally heating oil).  As you can imagine, the crack spread has a very close correlation to the margins and in turn the bottom line of these refiners.

The Crack Spread Versus the Refiners

Over the last half year I’ve been watching my favorite indicator for the refiners, and recently it has been very accurate.  I like to look at the crack spread divided by a refining company’s equity price.  Using this metric, you can track relatively how undervalued the refining equity is compared to its potential margin expectations.  Obviously the correlation for this type of analysis is not one to one, but the point is to get a rough estimate very quickly in order to understand what the market is pricing in for the future.

Since the beginning of November, I decided to use my ratio on Valero [VLO: 20.36, -0.08 (-0.39%)] as it is one of the more stable and largest refiners in the United States.  It also has more exposure to heavier types of crude oil and with the current glut of West Texas Intermediate, I decided that it would have more potentially for optimism in the short term.  Over this time period the ratio has fluctuated between 0.199 and 1.5016 (where the lower the ratio means Valero is more overvalued and the higher the ratio means Valero is more undervalued).  The low for the ratio occurred around early early December, and the high occurred around the end of December.  If you would have bought into Valero at the high of the ratio and then sold a month later when the ratio crossed its average of 0.955, you would have made around 25% on Valero’s move from $20 to $25.  Obviously the average is arbitrary based on the time period that you chose to use, but manipulating the time period for different length I found averages between 0.85 and 1.1.  20/20 vision is hindsight, but if you would have traded on this metric with discipline then you could have made a handsome profit.

The refiners have bounced off of their significant lows, in some cases over 25%, and buying in now wouldn’t be extremely prudent.  In Valero’s case, the ratio is sitting right below the average level and it seems to be valued correctly for the short term.  I think it is possible that we see a drop of 10-15% in most of these names over the course of the next few weeks.  If this drop occurs and the crack spread stays healthy, I would take a very careful look at the individual refining names, because the chance for a quick rebound in the equity prices would be very high.  As I stated before, this type of trade would be something I would only recommend to investors with higher risk tolerances who have the ability to monitor the markets on an intra-day basis.  Names that I think could be acceptable for this type of trading would be Valero, Sunoco [SUN: 29.76, +0.04 (+0.13%)], Hess [HES: 60.43, -0.83 (-1.35%)], Tesoro [TSO: 13.68, -0.09 (-0.65%)], and Western Refining [WNR: 4.81, -0.20 (-3.99%)].  Some of those names I wouldn’t like to be in long term, but they can still work for this type of trading strategy.  As an investor, you will never be right every time, but playing the odds over the long run will make you a winner.

- Charles W. Petredis

Disclosure: The author’s family is long XLE.  The fund the author manages is interested in going long VLO.

-Justin DiPietro

Disclaimer: None.

At this point in time, I would say a majority of Americans have no idea what is going to lead us out of this gigantic mess. Contrary to what either side of the aisle or Wall Street says, we are encountering a total vacuum when we talk about leadership steering us out of this potential depression. Every single solution that is brought to the table makes me feel like I am living in 1909 Leningrad, not the United States (and that is with all due respect to what I’m sure is a great city). The new mortgage plan for instance is basically forcing Americans who have paid off their own mortgages to pay down the principle for those who are unable to manage their own lives.

That being said, as grim as the picture is (without sugarcoating), I do not believe that this is the end of the world, or that the end is in the near future. Time and again America has overcome hardships, and it is time for people to start putting things into perspective before the media makes us feel like our only option is to jump off of the top of a building. During the Great Depression Americans were worried about putting food on the table, not whether or not they will be able to get a new flat screen television at Wal-Mart [WMT: 55.42, +1.52 (+2.82%)]. Today, our relative “poor” are no longer consuming past their means, not worried about whether or not their family will starve. Unemployment could reach levels much higher than the current mid-seven percent, but at least we won’t be looking at 25% unemployment like during the Great Depression.

There are key steps being taken by businesses and consumers alike to re-align our economy, and set us back on course for economic growth. Businesses are becoming more “lean,” and that amazing co-worker, whom no one seems to know what he or she does during the day, has recently been released. On the other side of the equation, consumers will be the ones to lead us out of this recession, and will keep us from falling into a similar problem in the future. No one can argue that we have been spending beyond our means. I think many people confuse the deficit with our spending problem, but the real problem is who owes the debt. If an individual has income and the ability to pay off their loans, debt is not inherently a bad thing. The problem arises as job loss causes defaults to rise, which isn’t new news. The real question is what will people do in order to improve themselves for the future; but the discussion of education in this country is for a completely different article.

The last major concern that I have regarding a comeback in the equity markets is debt, but not in the sense that you may be imagining. I am talking about corporate debt, and the possibility that debt may become the new “sexy” equity. I know we all are not like Warren Buffett, most of us couldn’t be further from, but lets take a minute to analyze his actions. As of his last filing, Buffett has been selling equity stakes in companies and buying up debt.   Most of this new debt Buffet is buying have guaranteed 10% coupons. I understand that this type of deal is not available to the ordinary individual investor, but the ordinary individual investor may be able to obtain returns of 4%, 5%, 6%, 7% etc. in the debt markets. If your 401K, IRA, and other savings were destroyed and you are starting again from ground zero, would you trust some of the crooks that are running this country? Would you take the risk of owning equities which contain several variables, or would you own debt for which the only thing you have to worry about is whether or not the company will exist when your debt matures? I’m no genius, but the second analysis sounds more logical considering the returns are much more stable and predictable. I’m not trying to cause a panic, but I believe we are more likely to see a debt bubble before we see another equity bubble.

Obviously, many questions remain, and I believe answers will only come with time. We need to see new accounting rules, shareholder and management interests re-aligned, better ethics and judgment, and about 400 other things. The good news is that for the most part we have defined the problem, and are realizing what we are up against.

- Charles W. Petredis

Disclosure: The mutual fund the author is associated with is long WMT. The author is currently short Barack Obama, Timothy Geithner, Christopher Dodd, Nancy Pelosi, Barney Frank, the Republicans, the Democrats, the Congress, the Senate, NBC, ABC, CNN, CSPAN, FOX, the Stimulus, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation but is long the American Spirit and People.