What You Need to Know About Buying Silver Today

It’s hard to believe that less than three years ago, silver was $8.80 an ounce. Since then it has nearly quadrupled in value (up 385%) and more than doubled in the last 12 months alone.

That’s great for those who already own the metal – but is it too late for the rest of us to get in?

To answer that question, BIG GOLD Editor Jeff Clark sat down with our friends of The Daily Crux. Read what he had to say about the silver rally, and why you should view any correction as good news.

Crux: Jeff, silver has had an incredible run over the past year or so… Where do you think it’s headed next?

Jeff Clark: Well, that’s probably the most common question we get these days. Silver has definitely been very exciting. The price has basically doubled in a year, and many of the stocks have done much better than that… So you could be forgiven for asking how long that can continue.

I think the bullish case for silver going forward comes down to three main factors.

The first is industrial demand. Everyone knows industrial use is much greater for silver than gold, and that does make it more susceptible to an economic slowdown. But what’s interesting is these industrial uses are growing rapidly.

For example, all of the following uses for silver are increasing: medical, electronics, food processing, water treatment, paper, building materials, wood preservation, textiles, consumer products… the list goes on and on. Every bandage-maker, for example, now offers a silver-based product. You can buy silver-laced toothbrushes, hairbrushes, combs, and make-up applicators. In England, you can buy silver-based soap.

The takeaway is that all these uses are on the rise, so even in an economic slowdown, there is a higher level of base demand. The demand for any individual application could decline, but the total number of applications for silver is increasing. Over time, I think we’ll see increasing levels of demand.

The second major factor is investment demand. Investment demand is soaring and can’t be ignored. The U.S. Mint sold more one-ounce Silver Eagles in January than in any other month since they began creating them in 1986. China’s net imports of silver quadrupled in 2010. Against all this you have the fact that most Americans don’t own any gold or especially silver. So even though there’s already incredible investment demand, the potential for it to increase is still tremendous.

The third factor is supply. Ask yourself what’s wrong with this picture: Total global demand for silver is about 890 million ounces a year. Worldwide mine production is about 720 million ounces a year. Scrap currently makes up the difference, but I think the crucial point to recognize is that producers can’t dig up enough silver to meet current demand.

So what happens if industrial uses continue to rise? What happens if investment demand continues growing? What happens if we do get some type of currency collapse? What happens if Doug Casey is right and we get a true mania in gold and silver?

We had bottleneck issues with physical supply in 2008, where mints across the world couldn’t keep up with orders. A lot of it was due to them being unprepared for the rush, and they’ve since improved some of their operations. That’s great.

But even with all the improvements, even after adding equipment, even after adding staff, even after adding work shifts… they’re still having issues. Over the past three or four months, we’ve been hearing about mints having delays, temporarily running out of stock, etc. So it’s still a problem.

And if all the factors I just mentioned come into play, then I think you could say “Bottleneck, meet desperation.” Regardless of how well prepared a manufacturer might be, demand at some point could legitimately overwhelm the system, and I think that’s a very real possibility. Anything could happen. But the scary thing is, we may not have enough supply to meet demand if we get a mania.

So based on these factors, my view is that silver can continue rising for quite some time. I don’t think it stops until SLV, the silver ETF, is a favorite of the fund managers… until Silver Wheaton is a market darling of the masses… until Pan American Silver is Wall Street’s top pick for the year… That’s when I’ll be looking for the end of this silver bull market.

Crux: Speaking of a mania, just how high do you think silver could go?

Clark: Many people don’t realize this, but silver rose 3,646% in the 1970s, from its November ’71 low to its January 1980 high. If you were to apply the same percentage rise to our current bull market, silver would climb another 500% from here, and the price would hit $160 an ounce.

Those are just numbers, but it shows that we have an established precedent for the price to go much higher.

It’s the fundamentals, of course, that will determine how high the price ultimately goes. Show me a healthy dollar, show me no threat of inflation, show me a responsible government that stops printing money… Show me a repentant Iran and North Korea… Show me that the sovereign debt issues in Europe are resolved… Show me positive real interest rates… Show me that unemployment is plummeting, that bank closures have stopped, that real estate is recovering…

Show me all that and we’ll talk about the gold and silver run being over… But until those things start changing in a big way, I’m buying.

Crux: Silver bears often suggest that a large part of the rally in the last bull market was due to the Hunt brothers, who were accused of trying to corner the market. What do you say to that? How much do you think they attributed to the price rise in the ’70s?

Clark: Well, I’m skeptical that the reason silver went as high as it did was primarily due to the Hunt brothers’ activity in the market. It’s interesting to note that they bought silver primarily because they mistrusted the government, and because they thought silver was going to be confiscated. Remember… gold ownership was illegal when they first started buying silver in the early ’70s.

Yes, they bought a lot of silver… But if you look at the correlation, you’ll notice the price didn’t necessarily move up when they bought. In fact, when the rumors that they were trying to “corner” the silver market really started going mainstream, which was in the spring of 1974, the silver price dropped solidly for the next two years. One would think that the price would’ve risen, not fallen, if silver was being “cornered.”

Secondly, if you look at price charts, silver moved in lockstep with gold back then. They rose and fell pretty much together. They both peaked on the very same day, January 21, 1980. So unless the gold market was equally spooked by what the Hunt brothers were doing with silver, it seems a stretch to assume they were the primary cause of the rise.

Last, as my editor pointed out, you have to consider that it was the mainstream media that largely promoted this idea the Hunts were “cornering” the market. With that in mind, one has to be suspicious that was, in fact, the case.

To be clear, I’m sure they had some effect, but to suggest they were the main impetus behind silver’s tremendous rise doesn’t seem wholly accurate. And look at the price today… It’s outperforming gold in our current bull market, just as it did in the ’70s, and there’s no Nelson Bunker Hunt around.

Besides… who’s to say that we won’t see other “Hunts” come along today and try to buy up large quantities of the metal? I wouldn’t rule it out.

So again, I think it’s more important to look at silver’s fundamentals for any kind of price projection than a one-off event. And those fundamentals are very bullish.

Crux: What are the bearish arguments for silver?

Clark: Well, I touched on it earlier… but if the economy crashes, silver is likely to suffer more than gold due to its large industrial use component. Another factor is that silver is not bought by central banks, so one source of demand for gold is not present with silver. But I think the bigger trend of a currency crisis is going to dwarf those concerns… And I think that silver will do very well in that environment.

Silver is more volatile than gold, but that just means you get better opportunities to buy it cheaper, and probably make more money on it if you sell near the top.

So yes, there are bearish arguments for silver, and one has to be prudent in buying it – you don’t want it to be the only asset you own, for example. But it would be equally a mistake to not own a meaningful amount.

Crux: So… is today a good time to buy?

Clark: Well, how many ounces do you own? And what percentage of your assets do those ounces represent?

There’s your answer. If you have minimal or no exposure, I suggest buying. Don’t rush out and spend all your available cash, because there will always be corrections, but the less you own, the more you want to make a plan to add a meaningful amount to your portfolio.

Remember… silver is a currency replacement just like gold. It’s money… and therefore you want to make sure you own enough for both protection and profit. If you don’t own enough, I suggest going into “accumulation” mode… buying some on a regular basis, like dollar-cost averaging.

Our recommendation in Casey’s BIG GOLD– which is a conservative letter, by the way – is that approximately one-third of your investable assets be devoted to the precious metals market. That includes gold, silver, and precious metal stocks. That may sound extreme to some, but we think the risk to currencies right now is extreme. Therefore, being overweight precious metals is justified. Obviously, each individual investor has to be comfortable with what they do.

Crux: Do you a recommend a certain percentage of ounces in silver versus gold?

Clark: We generally recommend you hold more gold than silver. We suggest approximately 70%-80% in gold versus 20%-30% in silver. Depending on your situation and risk tolerance, you may wish to have more or less in silver, but again the point is to have meaningful exposure.

Crux: For individuals who are new to buying precious metals, what are your preferred ways to purchase silver?

Clark: The options are becoming more and more mainstream, so it’s getting easier to buy both metals. The alternatives are growing, and they’re also improving. You basically have two choices: You can either buy and store it yourself, or you can buy and have someone else store it for you. Ideally, you want to do both… you want to diversify.

There are risks to storing metals yourself, such as theft, loss, or fire. You can put it in a safe deposit box, but then it’s in the financial system and it’s subject to banking hours and could even be susceptible to confiscation, though I’m skeptical that will actually happen. But I do think everyone should have some physical silver handy, at least a couple months worth of expenses.

So the short answer is to diversify what you buy and how you store it. For physical silver, I would stick to buying the popular one-ounce bullion coins – Eagles, Maple Leafs, etc.

You can also buy silver funds and ETFs in your brokerage account or online, and there are definitely some advantages to doing that. They’re easy to buy, sell, and trade. There’s no need to mess with the storage yourself, and it’s especially beneficial for those who have larger holdings. You can put $50,000 worth of gold in the palm of your hand – but $50,000 worth of silver would require a small suitcase, so space is an issue. A lot of online options now have delivery alternatives available, and some even have free storage. Options here include the various ETFs, closed-end funds, online options like GoldMoney or BullionVault, and certificate programs like the Perth Mint Certificate.

So find a couple options you’re comfortable with, diversify your holdings, and just continue to buy on the dips, with the intention to hold until the bull market is over.

Crux: How about silver stocks. Can you give us a favorite?

Clark: Well, it’s pretty clear the go-to stock in the silver industry – in my opinion at least – is Silver Wheaton. It’s definitely been a sweetheart the past two years. It’s given us everything we could want in a silver stock.

The stock suffered badly in the meltdown of ’08, and things did get a little dicey at the time, but I remember thinking that unless the world comes to an end and the silver price never recovers, this company is going to survive and bounce back – in part because of management and in part because of the business model. They have no exposure to mining costs, for example.

Shares back then were around $3… If you bought at the time, they’re now a ten-bagger. So it’s been an incredible run.

The question, of course, is going forward: Since the stock is already at $35, can it be another ten-bagger from here?

Well, the company expects to increase “production” by 70% by 2013. And their costs will basically stay stagnant. Meanwhile, imagine where the silver price could be in the next two to three years, and you can see this company can make enormous amounts of cash. Some of that is probably priced into the stock already, but you can’t deny where this company is headed over the next few years.

In the bigger picture, you have to look at our currency issues – they’re very real. They’re deep. They’re intractable. So when I look at what is likely to happen to the dollar and thus what level of inflation is probable, I think silver will go substantially higher, which means Silver Wheaton is going to go much, much higher. Only if you believe deflation ultimately wins the war and that inflation doesn’t occur do you think silver or Silver Wheaton won’t do well.

Could it have a big correction? Well, it recently dropped as much as 28%, but sure… it could easily fall more than that in a major correction. But if that happened, I’d consider it a big buying opportunity.

In my opinion, the bigger the correction, the bigger the buying opportunity, because I really believe the future is very bright for that company.

Crux: Sounds good. Any parting thoughts?

Clark: If you’re bullish on gold, I think you need to be bullish on silver, unless you think inflation will never come to pass. Regardless of the short-term fluctuations in the market, it’s only a matter of time before the currency issues punch us in the gut and inflation really takes off.

Second, remember that silver will be volatile, but focus on the fundamentals and use selloffs as buying opportunities. Until the fundamentals driving the bull market change, buy.

Bottom line, the bull market is far from over. I think it’s going to go much longer and much stronger… So buying on dips is the best advice I could give anyone.

Crux: Thanks for talking with us, Jeff.

Clark: You’re welcome. Thanks for having me.

Editor’s Note: Readers of Casey’s BIG GOLD can access Jeff’s full list of the world’s best gold and silver stocks, along with Casey Research’s preferred and trusted precious metals dealers. Get your three-month trial with a full money-back guarantee today.

Seabridge: My Best Trade Ever Is an Even Better Deal Today

By Dr. Steve Sjuggerud Tuesday, February 22, 2011
In mid-2005, I recommended shares of Seabridge Gold (SA) to a few thousand subscribers. We sold a couple years later, up 995%.

Today, it’s a better deal than when I originally recommended it…

Seabridge is one of the world’s largest undeveloped gold deposits, with $90 billion worth of gold in the ground in Canada.

When we bought it in 2005, it offered fantastic upside potential: If the price of gold went up, Seabridge would soar. But our downside risk was limited: Seabridge’s stock was so cheap compared to the amount of gold it owned, it could hardly go lower.

That’s the way I want to invest.

You want to buy Seabridge when you’re getting a LOT of gold for a low price. After we made nearly 10 times our money on Seabridge, I never thought I’d get a chance like that again… But Seabridge is a better deal today than it was back then.

Since 2005, shares of Seabridge have climbed from $2.64 when I originally recommended it to over $30 today. So how can it be a value today when it’s up so much?

Three reasons:

1) The price of gold has soared, increasing Seabridge’s value.
2) Seabridge’s shares have done nothing since mid-2007.
3) Seabridge has massively increased its gold resources.

The chart below from my January 2010 issue of True Wealth tells the story… It compares the market value of Seabridge shares to the value of its gold resources in the ground.

Back in 2005, Seabridge didn’t have a lot of gold value in the ground compared to today. But it didn’t have a big stock market value, either. So it was cheap. You can see what I mean in the bottom left of the chart.

By mid-2007, Seabridge was expensive relative to the gold it had. And we sold. But since then, the price of gold has doubled. The dollar value of Seabridge’s gold in the ground has soared. But the stock is similar to the price we sold it at in 2007, at around $30 a share.

Even though Seabridge is cheap, it has a lot more going for it today than it did back in 2005… With the price of gold so high, it’s “economic” to pull the gold out of the ground. And in recent years, Seabridge has done the drilling necessary to reclassify much of those gold “resources” into gold “reserves.” This dramatically increases Seabridge’s buyout value.

Seabridge’s flagship asset Kerr-Sulphurets-Mitchell (or KSM) likely has around 35 million ounces of gold reserves. In March 2010, gold giant Barrick Gold bought into a project like Seabridge for $82 per ounce of gold reserves.

Valuing KSM at $82 per ounce, that’s a buyout price of $2.87 billion… over twice Seabridge’s current market value (around $1.3 billion).

If gold keeps going up as it has, the ultimate buyout price could go much higher. And I’m not counting Seabridge’s other assets, either. The bullish case is as high as $200 a share.

On the downside, if gold falls dramatically, Seabridge will get hurt. But as the chart above shows, Seabridge is so cheap, shares should have a floor to their price. The other downside risk is that the universe of potential buyers is small. But this is a motherlode asset, in a safe jurisdiction (Canada), so it will happen someday.

The price of gold has doubled since 2007. And Seabridge has dramatically increased its own value. Yet the stock price of Seabridge has been stuck around $30. (I told my paid subscribers to buy shares of Seabridge Gold under $29. That advice still stands… Don’t chase it.)

Readers once rode Seabridge for a 995% gain. It’s a much better deal today than it was back then. It will be a mine some day. It will be bought out some day… And shareholders will make triple-digit returns from current prices.

Good investing,

Steve

THE XLF BATTLE IS OVER. THE BULLS WON.

The breakout is official: It’s a bull market in financial stocks.

For over a year, we’ve monitored the long “bulls vs. bears” struggle in the big financial investment fund (XLF). It’s been one of the most important battles in the entire stock market… or it was, anyway.

With large weightings in giants like JPMorgan, Wells Fargo, American Express, and Bank of America, XLF rises and falls with America’s ability to earn money, service debts, launch new businesses, and generally just “get along.” For 18 months, this fund was locked in a huge sideways trading pattern. Several weeks ago, we noted how this fund was “one small step” from taking out its April 2010 closing high of $17.05.

On Friday, February 11, that step happened. XLF built on its bullish series of “higher highs and higher lows” to close at $17.08… Then inched higher to close at $17.16 last Wednesday.

We once again remind readers there are many things worth worrying about out there (government debt and government debt being the two biggest), but since money talks and you-know-what walks, we have to look at this bull move in America’s financial backbone and say, “For now, things ain’t all bad.”

Weekend Edition – February 19, 2011

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February 19, 2011 | www.CaseyResearch.com Dear Reader,

Welcome to the weekend edition of Casey’s Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers.

Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com.

Elementary, My Dear Watson

By Doug Hornig

I think, therefore I am.

That bedrock concept has been at the center of Western thought since Rene Descartes first set it down in 1637. It attempts, in one all-encompassing line, to establish the existence of individual consciousness, and by extension the physical being of the thinker.

What is less often considered is that the human element was implicit. In the 17th century, no one would have or could have conceived that anything other than a person might engage in such philosophical musings. Animals didn’t “think.” And machines? Forget about it.

Today, Descartes would be in a bit of a quandary. Animals exhibit tool-using and problem-solving behavior that strongly suggests logical thinking, one of the hallmarks formerly believed to distinguish our species from the rest of nature. And if machines don’t think, they do something awfully similar.

Of course, it depends on how you define the term.

The famous Turing Test – as proposed in 1950 by legendary British mathematician, cryptanalyst, and computer pioneer Alan Turing – is still cited when we attempt to delineate just when a machine achieves intelligence.

Let a person have a text chat, Turing said, with both a machine and another person, both of whom are hidden and trying to act human. Then see if the interrogator can tell which respondent is the machine. If the interrogator cannot reliably make the distinction, then the machine may be said to possess intelligence as best we can define it.

So far, machines have always flunked the Turing Test. At first, they couldn’t fool anyone. However, Turing was writing at the very dawn of the computer age, when a huge room full of vacuum tubes couldn’t do what a cell phone can do today.

To check the current state of the art, there’s the annual Loebner Competition, in which the best machines from around the world attempt to convince a panel of interrogators of their humanity. They still can’t do it consistently, but they’re getting better. Here’s an example from a recent competition, wherein an interrogator submitted questions to three respondents, a male, a female, and a machine. All three entities knew that it was fall in England, and the interrogator asked of all three what they thought of the weather that morning. The responses:
“I do tend to like a nice foggy morning, as it adds a certain mystery.”
“Not the best, expecting pirates to come out of the fog.”
“The weather is not nice at the moment, unless you like fog.”
See if you can figure out who’s who. Not exactly a slam-dunk cinch, is it?

(Did you correctly identify: a. machine; b. male human; c. female human?)

Reliably fooling humans is proving beyond a machine’s present capabilities. But how about competing against people? Could a computer, say, play Jeopardy!?

This would seem highly improbable. Not only does success at Jeopardy! depend on an extremely broad knowledge base, but contestants have to deal with puns, allusions, irony, riddles, and other non-logical word plays, as well as make sense of categories that can be a bit abstruse.

Think that’s beyond the reach of a machine? Then you need to meet Watson, who was not only Sherlock Holmes’s devoted sidekick but is a functioning computer personality from IBM. Watson, actually named for the company’s founder, Thomas Watson, plays Jeopardy!. And plays the hell out of it.

Heading up the Watson project is David Ferrucci, IBM’s senior manager for its Semantic Analysis and Integration department. Ferrucci’s team scanned into the machine’s memory vast numbers of databases, along with millions of documents. Reference books, news articles, scholarly papers, tabloid blurbs, whatever. The hard part was recreating what the human goes through in order to get from answer to question. Google is the model for that kind of search, but does it merely by hunting down words or strings of words, and returning every single hit. That won’t work with Jeopardy!, where you have to distill the intended meaning of an answer (with all of its nuances) into the one correct question.

Once the data were in place, Ferrucci gave Watson more than a hundred algorithms to use at the same time, to analyze a question in many different ways, generating hundreds of possible solutions. Another set of algorithms ranks these answers according to plausibility. And then the computer selects the one at the top of the list and hits the buzzer.

Oh, and no Internet connection allowed. That’d be cheating.

Since last summer, Watson has been practicing, taking on humans on a mock-up of the Jeopardy! set and doing well. So well that the producers of the show decided it was time to let “him” go up against some proven competition, right in the evening spotlight.

They chose Monday, February 14. Valentine’s Day. And the following two nights, as well. For competitors they picked the two greatest all-time Jeopardy! champs, Ken Jennings and Brad Rutter. Let the games begin.

(As an added attraction, the practice rounds featured a graphic that shows the three answers Watson has rated as most likely to be correct, and how certain he is of the answer he selects. That’d be a plus in the final showdown, since it would provide something of a window into Watson’s “brain.” But we don’t yet know whether it made it to the show.)

Granted, a perfect simulation of Jeopardy! with a machine playing is impossible. Computers don’t care about winning or losing money; people do. Computers are emotionless; human contestants can freeze up or be driven to greater accomplishment under pressure. And so on.

Still, there’s no question that the coming week’s event is a milestone, comparable to the 1997 chess match that saw IBM’s Big Blue computer defeat Garry Kasparov, the reigning world champion.

Ferrucci and IBM are thinking way beyond Alex Trebek. The potential applications of something like Watson are myriad. Considering the primitive state of present question-answering machines, like the one you get when you call your airline, this is a huge leap forward. It’s not too early to envision the day when a doctor, a lawyer, an engineer – any specialist – will be able to have a conversation in English with a Watson-like machine that has speed-of-light access to all the present and historical knowledge in the field.

But for now, the tapes are made and the results guarded like the Oscars. There’ve been no leaks. To see what happened with Ken, Brad and the machine, you’ll just have to tune in. And to get you in the mood, you can have a quick go at Watson yourself, here.

Whatever the outcome of the match, robotics is exploding in real time. Yet the science is still elementary, dear Watson. Robots are about where the personal computer was thirty years ago, and they are destined to change our lives, probably as much as the PC has, in the next thirty. Casey’s Extraordinary Technology watches robotics carefully and has tucked two of the leading companies in the field into our portfolio. Both have performed admirably since we added them, and there will surely be many more to come.

Canadian Natural Gas Sees a Trade Partner in China

By the Casey Research Energy Team

A $5.4 billion investment by a Chinese company in one of Encana’s massive shale gas properties in northern British Columbia and Alberta is another sign that Canada wants Asia to become a major importer of its natural gas.

Encana is a leader in one of the things the Casey Energy team loves: unconventional natural gas production. Natural gas is a cleaner energy source than oil or coal because it releases less carbon dioxide and fewer pollutants when burned, so it is becoming an important component in global clean-energy plans. And unconventional technologies have already played a major role in the gas scene of late, a trend that we expect to continue with both gas and oil.

The $5.4 billion will buy half of Encana’s Cutbank Ridge shale gas properties, which cover 635,000 acres. The properties currently produce 255 million cubic feet of natural gas per day and contain proven reserves of more than 1 trillion cubic feet. The joint venture also covers about 700 million cubic feet per day of processing capacity, some 2,100 miles of pipelines, and a gas storage facility.

The deal is the largest foreign gas deal to date by a Chinese company. China is hunting around the world for gas reserves to support its plan to triple natural gas usage over the next decade. Chinese firms have pumped about $14 billion into Canadian oil and gas companies over the last two years. On its website, PetroChina says it has been trying for years to work with major Canadian energy companies and expects the Encana deal “to provide a platform for entering the major market in North America.”

For Encana, the deal will let the company accelerate production while keeping a lid on costs. Encana has been struggling with low North American gas prices because, unlike oil, North American gas is not a globally priced commodity. Instead it trades largely only within the continent because transportation limitations keep it here. Natural gas can only be moved via pipelines because of its huge volume; when condensed into liquefied natural gas (LNG), it can be sent via ship, but there are no LNG facilities in North America.

Canada sends the majority of its oil and gas exports to the United States, which means Canadian energy producers depend on U.S. demand for the bulk of their revenues. Relying on one customer is never a good business model, especially when that customer has concerns about one of Canada’s most important energy sources (the oil sands) and about a proposed pipeline expansion.

To diversify its customer base, Canada has been eyeing increasing trade with Asia. Two proposed oil pipelines and one proposed liquefied natural gas facility would all enable Canada to export energy from the west coast straight to Asia. None are permitted yet, and all face significant opposition from environmental groups.

This PetroChina deal, though, adds some fuel to the developers’ fires. It is only sensible to assume that PetroChina’s decision to make such a major investment in Canadian gas, at a time when North American gas prices are low because of a supply glut, was based on a strategic premise: to secure gas supplies for China in the future. In particular the proposal to build a LNG facility in Kitimat likely encouraged the Chinese to move ahead with the deal, which has apparently been in the works for nine months.

Encana’s investors were very happy with the deal, lifting the company’s share price 4.5% in a day to reach $32.02. The lift came despite the company reporting a US$42 million net loss for the fourth quarter.

In the bigger picture, the news is nothing but positive for Canadian natural gas. The advent of fracking has led to major oversupplies of natural gas in the United States. Investment like this can only encourage Canada to develop the infrastructure needed to export gas to Asia, where demand and prices are higher.

The Encana news lifted other companies producing natural gas in B.C. and Alberta, including Encana’s sister company Cenovus. Cenovus was born when Encana spun its conventional oil and gas assets out into a new company. The Casey Energy team recommended buying Cenovus in mid-2010, when the company was trading at $27.40. Including the 98 it gained on the Encana news, Cenovus’ share price now stands at $34.80, which means a 27% gain for our subscribers. Learn more about the gains you can get from top-quality energy stocks here.

The Coming Food Envy

By Kevin Brekke

In 1996, a book titled The Clash of Civilizations and the Remaking of World Order by Samuel P. Huntington was published. In it, the author argues that the age of ideology had concluded, and that the primary axis of future conflicts in a post-Cold War world will be along cultural and religious lines. The uprisings, skirmishes and wars to come would not be fought over resources such as rice or oil but over differences of ethnicity and faith.

Huntington’s theory, as you would expect, mustered ample critics. Among them was Edward Said who, in his 2001 response The Clash of Ignorance, indicts Huntington for his use of oversimplification and static depictions of whole cultures. Reality, counters Said, is far more complex and dynamic.

A darkly comical sidebar to the debate was the response from the United Nations, its so-called theory of Dialogue Among Civilizations. The “theory” was the basis for a UN resolution naming the year 2001 as the Year of Dialogue Among Civilizations. When all you have is talk, every problem looks like faulty communication. Presumably, the solution to all strife in the world would come about from endless talking by its delegates while bravely enduring long hours in premium-class airline cabins, soldiering through endless caviar-topped buffet luncheons, and suffering unknown numbers of nights at five-star hotels.

The machinations of clueless NGO personnel notwithstanding, it is said that time heals all wounds. It also exposes false assumptions, like Huntington’s speculation, as we were again reminded by yesterday’s news.

“World Bank: Food Prices at Dangerous Levels,” read the Associated Press headline.

I doubt that anyone reading this gives much thought to the possibility of hunger or malnutrition paying them a visit. To Western cultures, the idea is as foreign as a homegrown political revolution or life without air conditioning. Even for a well-seasoned traveler in possession of a dog-eared passport, the plight of the world’s hungry is largely out of sight. As a tourist, you are not likely to encounter the dark underbelly of extreme poverty while taking in the popular attractions.

But leaving home is not mandatory to witness food insecurity among the most unfortunate. As of last month, the number of Americans receiving food stamps reached 43.2 million, 14% of the population, or nearly 1 in 7 people.

The phenomenal rise in the number of people seeking food assistance has so far been the direct result of protracted economic hardship that has befallen many individuals and families. The culprit has been mainly unemployment.

But if the worldwide rise in commodity prices continues, opening the door to food price inflation, the financial and economic crises plaguing the U.S. will soon devolve into a social crisis. It is one thing to be struggling to pay your bills; it is a whole different thing to be struggling while you and your family are hungry or feel deserving of a better diet.

Your neighbor may not like forgoing his cell phone for a landline, or battling with an antenna after canceling cable, all in the name of belt-tightening and a shrinking family budget. But when the smell of your steaks on the backyard grill wafts across his nostrils while he pretends to enjoy another plate of spaghetti and meatless sauce, a new kind of resentment will seep into the collective conscience of a growing slice of anxious Americans…

Food envy. At some point, and it is not far off, the complexity and urgency of food security will become a reality, and a battle in the land of plenty will ensue.

In many ways the battle has already begun. Shoplifting of food, or “shrinkage” as it is known in the retail industry, is on the rise. This is a fact that the food industry avoids talking about and works hard to keep out of the press. Not surprising when you consider that few food items carry a security tag, making them an easy mark.

Profit margins at grocery chains have compressed as retailers attempt to absorb price increases as rising commodity prices pass through to the wholesale level. Inventory shrinkage at grocery stores further pressures margins, and retailers will be forced to pass along their rising costs to the consumer. There is little to no room left for retailers to eat price increases.

Recalling Huntington’s outlook for clashes among civilizations, it looks like his theory is hit and miss on several issues. Conflict between differing groups has occurred since the human population exceeded one – it seems part of the human condition, and no change looks to be imminent. And disagreements over resources and ideology will continue; the idea that one would supplant the other seems nave. So, maybe a more appropriate title for his book would have been to suggest intra- rather than inter-civilization clashes.

The coming rise in food prices will be no less dramatic than for all commodities as the downfall of paper money accelerates. A man can survive without many things, but food is not one of them. And long before his supper table is empty, his envy of those with a diet more aligned with his desires will predictably spur a great cry for “food justice.” Any attempt by government to control, subsidize, or ration the food supply will end in disaster, and if history is a guide, shortages and higher prices. When preparing for future surprises, don’t forget to include higher food bills.

Commodity Prices Begin to Filter Through

By Vedran Vuk

As most readers have probably heard by now, January inflation increased by more than expected at 0.4% from the previous month. Rather than focus on the big number, I investigated a few of the smaller categories in the BLS data, particularly in foods affected by commodity prices. One item immediately jumped out – the fats and oils category. Since last month, seasonally adjusted prices in this category increased by 2.1% – that’s enormous. Since soybeans are a crucial ingredient to vegetable oil, this spike is fairly easy to explain.

Let’s take a look at a few more categories in the data. Remember, the charts below are consumer prices. Coffee is a good start. Since last year, the price has increased by 15.9% from $3.81 per lb of ground coffee to $4.42 per lb. (For some reason, the coffee data had a large gap in 2009; as a result the chart begins in 2010.)

Next, let’s take a look at sugar prices per lb. Since 2007, sugar has risen 25.6% from $0.52 per lb to $0.65 per lb.

The last chart shows soft margarine prices. Again, since vegetable oil is a part of margarine, the price will necessarily be affected by spikes in the soybean market. Since 2007, the price has increased by 50% from $1.15 per lb to $1.72 per lb.

Hedgers are a big reason why consumer prices lag the commodity market. Major companies have already locked in their purchases and prices months ahead in the futures market, so they can delay price increases.

The second factor is the elasticity of the products. That’s a fancy economics term for the change in demand in response to a change in price. When a product is inelastic, demand changes little with a change in price. A good example is coffee. Most coffee drinkers do not alter their consumption based on price fluctuations. Of course, companies have calculated the elasticity of their products. Since inelastic products are less responsive to price, hedging departments pay less attention to covering these costs. For example, coffee prices can be easily passed down to consumers (as a rule of thumb, the more elastic a product, the bigger the hedges). Hence, elasticity can be a good predictor of how quickly consumers will feel the impact of spikes in the commodity markets.

Dirty Jobs

By David Galland

Friend and occasional contributor to our publications, Neil Howe, has done seminal work on cycles of societal change related to the ebb and flow of generations. If you haven’t read his and William Strauss’ book The Fourth Turning, do yourself a favor and get a copy. (I just checked, and it’s available on Kindle).

Or, for the CliffsNotes version, you can download and read an interview I did with Neil last year.

The long and short of things is that Neil believes we are headed in to what he calls a “fourth turning,” a period that is invariably marked by great turmoil and crisis (World Wars I and II, as well as the Great Depression are prototypical fourth turning periods).

One of my favorite examples of the sort of societal shifts Neil talks about is the difference between the 1950s and the 1960s, which you can see in the photos here.

Literally no one saw it coming.

The jury is still out on what exactly will tip the U.S. and global economy over the edge and into another fourth turning – though I suspect the disastrous financial condition of the sovereigns and the implications that has right across the societal spectrum will play a major role.

Another candidate has to do with the outlook for employment in the Western nations – and increasingly, across much of the developing world.

As with any complex system, this topic is multi-faceted.

For instance, think for a minute about the expectations of today’s youth as they look ahead to their futures. Whereas the young used to, almost as a matter of course, follow their parents into a trade – be it farming, or working in the automobile plant – today not many would picture themselves spending a lifetime laboring in what might be termed a “dirty job.”

You know, jobs such as working in an industrial plant, or pulling night shifts cleaning bed pans at hospitals… Illegal immigrants are no longer welcome, and enforcement actions against those who hire them are far more stringent than ever – so we can’t count on them filling the gap.

But the gap is there, and as the baby boomers move past their productive years, it will only get bigger.

And it’s not just the dirty jobs: the young of today will find the idea of working to support the boomers and their predecessors who are on the dole in their dotage reprehensible.

As on many fronts, Japan provides a stark portrait of what’s coming. In 1950 there were ten Japanese workers for every ten Japanese pensioners. Today, the ratio has dropped from 10:10 to just 3:1.

Guess what? As you can see in the chart here, even though the retirement of the baby boomers in the U.S. is only just now getting under way, the worker-to-retiree ratio in the U.S. is right in line with Japan’s.

If you are in your fifties and think you are going to collect on Social Security, you might want to think again.

Staying on the topic of dirty jobs, a meme these days is that the Chinese have hollowed out the manufacturing sector of the United States and other countries of the West.

Yet, as the next chart so clearly shows, while the number of people going in to manufacturing in the U.S. is indeed falling, manufacturing output has remained strong.

In fact, arm waving to the contrary, U.S. manufacturing as a percentage of GDP rang in at 39.4% over the past decade, versus 37.2% in the 1990s, and 34.9% in the 1980s. So, sure, a lot of jobs shipped out overseas, but that’s in no small part because U.S. businesses have gotten so much more efficient at making things with higher margins than, say, flammable sleepwear for children.

If you think about that for a moment, you may find some hope for the future – because while China has made achieved big competitive gains by manipulating its currency, that has to end badly. It always does. And when it does, the streamlined U.S. manufacturing sector will be ready to compete. Alas, it may not employ any more workers (something I’ll address momentarily), but anything that helps to reduce the trade deficit is to be welcomed.

To put the situation in manufacturing in proper context, look at the long-term chart for agricultural production versus employment in the U.S. Again, one can see just how efficient the U.S. has gotten at producing stuff… without employees. There’s no reason to wonder about the future of U.S. manufacturing: the chart for agriculture says it all.

What’s behind these massive structural shifts in employment? Obviously, one factor has to be the exponential advances in technology.

Another could be attributed to the increased availability and ease of accessing media. Media has long been used to convince people to dress and act a certain way, but it has only been in the last 50 years or so that its presence in our lives reached endemic levels. And none of that media today makes a virtue out of long hours toiling under the hot sun, or fixing widgets to gadgets on production lines.

Another reason for the shift away from hands-on work has been the steady encroachment of government into the workplace. All with the best of intentions, naturally – but each new rule, regulation, tax, reporting requirement, workplace safety inspection, and wage mandate makes the hiring of employees something to be avoided at all costs.

I’m reminded of my visit to a huge zinc mine in Sweden, a country that is even further ahead in its workplace mothering. In Sweden, hiring a new employee is almost on a par with proposing marriage – a lifetime commitment, ’til death do you part.

In my young and foolish days I spent six months working in a mine in the United States – and it was a big, messy, crowded place, with large elevators full of dozens of dirty miners being lowered into the depths of the earth to do a very dirty and dangerous job.

Not so the mine in Sweden. Even though it was a regular work day, there were almost no employees in evidence, even in the huge milling facility – a place the size of a decent-sized sports stadium, complete with gigantic machines noisily crushing and grinding rocks. In all the time we spent in the mill, we saw only one employee – a young 30-something who briefly appeared to check a computer screen before disappearing from whence she came. This, too, is the future for American manufacturing.

In contrast to the West, where avoiding employees is Job #1, China’s problem is exactly the reverse – they desperately need jobs for the masses. At this point in time, that means the manufacturing jobs that we in the West no longer want or can perform profitably.

Unfortunately, thanks to a brisk and accelerating inflation in China, Chinese labor costs are on the rise – up over 20% in Beijing his year alone. That makes it increasingly difficult to remain competitive. Quoting a recent report out of Nomura securities:
“For some labor-intensive manufacturers, China’s wage level is no longer attractive. The manufacturing factories will likely be moved to China’s inland provinces or to countries such as Vietnam, Thailand, and Indonesia where labor costs are much lower.”

This is, of course, quite threatening to the myth of China’s economic invincibility, if for no other reason than Chinese manufacturing margins are already noodle-thin at somewhere between 1% and 10%. Case in point: FoxConn, Apple’s “go-to” manufacturing company in China, works on a margin of just 2.5%. Not a lot of wiggle room.

Logically, in order to avoid a wholesale shutdown of its industry, or to require massive government subsidies on a long-term basis, China will have to adopt the same modern, labor-saving manufacturing tools that we in the U.S. are using so effectively. But, trapped between a rock and a hard place, implementing those efficiencies will cost jobs – causing the sort of civil unrest now catching fire in the Middle East.

All fine and well, and good riddance to the political heirs of the murderous Mao, I say. But, here’s the point – none of this tossing the bums out actually creates new jobs.

Not in China and not in the U.S. And while the sprouting flowers of freedom in the Middle East and elsewhere will bring forth more work than is now available, the global trend is solidly on the side of steady adoption of the latest and greatest manufacturing tools.

Conservative projections for the robot industry through 2035 are shown in the following snippet from the November 2010 edition of Casey’s Extraordinary Technology:
The global leader in robotics remains Japan, with America and Germany coming up close behind it. That country’s Ministry of Economy, Trade and Industry estimates that the global robotics market will expand about 10x over the next 25 years, and nearly 60% in just the next five…

Aarkstore Enterprise, a market research firm, estimates that by 2020 the total robotics market, by its definition, will expand to match the automotive industry in gross revenues.

(If you’re interested in diversifying into money-making trends in technology, Casey’s Extraordinary Technology has you covered. We’ve just put the finishing touches on an Investor Update titled, “3 Biotech Stocks to Own in 2011.” The first stock is profiled within the update, including the stock name and buy price, free and at no obligation. Simply click here to get the Investor Update now.)

Which brings us to an interesting paradox: The world need jobs, but the steady progress in technology is slashing the need for human workers to do what jobs remain… and is slashing that need at an almost exponential pace.

The International Federation of Robotics reported a 27% increase in robotic sales in 2010, despite – and probably in no small part because of – ongoing pressure on the global economy.

And who do you think is going to be doing the work of assembling the robots? Humans? Not hardly. Like the promised future of nanotechnology, but on a macro scale, it will be machines making machines that make machines.

Soon people won’t be shaking their fists at the Chinese for stealing our jobs, but at the machines. And the machines won’t take notice.

And then what? Does the government in all of its wisdom begin limiting the use of machines in the workplace? Or will the shift be back towards command economies, where companies are forced to hire and produce based on the dictates of some ruling council?

And that, dear reader, is that for this week. Until next week, thank you for reading and for subscribing to a Casey Research service!

Vedran Vuk
Casey’s Daily Dispatch Editor

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The Anatomy and Dissection of a REE Junior: An Analyst’s View

The Mercenary Geologist’s REE Review:
February 7, 2011
Contact@MercenaryGeologist.com
In previous musings (REE Reviews: August 22, 2010; October 4, 2010), I assessed challenges the layman experiences in attempting to understand the technical information contained in news releases. I critiqued examples from Canadian and Australian-listed juniors that I felt were extremely misleading for the average investor.

I now dissect a rare earth element junior where in my view speculators are not doing proper due diligence. From the website:

Stans Energy Corp (RUU.V), with a strange symbol and an even stranger choice of countries in which to work in (Kyrgyz Republic), has been very busy of late promoting a former rare earth element mine that was operated by the Russians “
Back in the USSR” target=”_blank”>Back in the USSR

” days. My perusal of the company website raised several red flags aside from the once ubiquitous hammer and sickle that ruled this part of the Eastern Hemisphere from 1936 to 1991. Based on what is left unsaid, it appears this company has adopted an iron-curtain disclosure policy.
The website gives no indication that management has junior resource company experience or any experience in rare earth elements. But they do have Russian connections.

Nowhere could I find the company’s share structure. I had to go to SEDAR.com and the latest MD&A to find that it has 132.7 million shares outstanding and 148.1 million shares fully diluted. Yikes, that’s well on the way to a terminal case of Aus disease. I guess that’s why they want to stay quiet on the subject.

There is no mention of the recent geopolitical upheaval in the Kyrgyz Republic including the April coup that overthrew the President, subsequent rioting, and ethnic violence against the Uzbek minority in the south that continued into June. Kyrgyzstan is rated as one of the ten most corrupt countries in the world.

I did not find a corporate power point presentation anywhere on the company website.

In December 2009 the company announced that a 43-101 resource estimate was to be commissioned on the Kutessay II deposit in Kyrgyzstan. There has been no mention of this study in the intervening 13 months.

In early March a press release stated that Kutessay II was undergoing a JORC resource estimate.

For the uninitiated, a JORC (Joint Ore Reserves Committee) estimate is the Australian equivalent of a 43-101 resource estimate. Why would a Toronto Venture Exchange company with no listing or physical presence in Australia choose to commission a JORC resource? It is now nearly 10 months later and no resource estimate has been produced.
In February 2010, RUU took a 12 month option on an old Soviet metallurgical and chemical complex that concentrated, extracted, processed, and produced a wide variety of rare earth element products during the life of the mine. The option requires agreement on a purchase price, financing, and acquisition by February 2011. Stans recently announced a purchase price of $5.5 million for the complex and a rail head terminal and an inventory study and appraisal of the four plants. Financing and acquisition remain to be completed.

In a September press release, Stans Energy announced a relationship with a Russian state-owned institute to jointly pursue rare earth acquisitions in Russia. Recent investor relations material stated: “The two organizations are teaming up to jointly pursue rare earth acquisitions in Russia, marking the first time a state owned institute will pursue direct ownership in the development of rare earth properties.” Note that foreign investment in strategic resources in Russia is currently illegal. It also begs the question: Is a partnership with the Russian government a good thing for a public company?

Now let’s now dissect RUU’s website information about the Kutessay II flagship project and its latest press release:
On December 14 Stans Energy reported results from a channel sampling program in an adit to validate old assay data from the Soviets. Although individual results varied widely, statistical analysis indicated that the means of the Soviet and RUU data were equal for a group of 170 samples. I examined the report and it appears methodically done in a workmanlike manner. The mean of these samples is 0.35% TREOindicating low grade rare earth mineralization but no average grade was given.

Historic mining occurred in an open pit from 19581991. 5.45 million tonnes grading 0.41% REE were mined and 22,109 tonnes of REE were produced. The exact startup and end of mining are equivocal as other information on the website indicates1966 and 1995 respectively.

Concentration and recovery were low at 6.2% and 64.5% REM (rare earth metals) respectively. That means that 0.26% REMs were recovered from the metallurgical process.

The deposit was enriched in HREEs with an average 47.2% with 26.7% of that as yttrium. The ore had significant quantities of currently high priced and scarce elements including neodymium, dysprosium, europium, and terbium.

Note that 0.41% REE mined and 0.26% recovered is very low grade and would have been well-below economic grades using Western World standards of profitability.

But it gets worse: In 1996 using substandard Soviet reserve categories, the Kyrgyz State Reserve Committee calculated 20.2 million tonnes of mineralized material remained at depth below the pit grading 0.22-0.27% rare earth metals using a 0.07% cutoff.

Folks, that’s so low grade it’s little more than a geochemical anomaly!

It appears to me that Stans Energy Corp’s performance in 2010 is a classic case of rare earth hype and an overpromise and under deliver modus operandi.

There are now more than 200 public junior companies worldwide that have rare earth element projects (Source: Intierra Mapping). I estimate 95% of companies in this space are merely mining the stock market. In a speculative commodity or area play, the informed and diligent investor quickly can separate the few contenders from the many pretenders.

In my view, Stans Energy is a share-challenged issuer with management inexperienced in the junior resource sector and rare earth elements, holds a low grade, likely subeconomic REE deposit, and operates in a geopolitically unstable and corrupt country. I do not think the company’s current share price of $3.00 and market capitalization of nearly $400 million are justified or deserved for the current level of development and past execution. It appears to be carried along in the speculative rare earth bubble. My concern is that promotional stories with no clear substance could do significant damage to the entire sector.

I solicit a response to my pointed opinions presented herein from Stans Energy Corp personnel, analysts, newsletter writers, and/or the Toronto-based promoters who have been pumping this stock via email blasts in early and late November, the end of December, mid-January, and early February (see correlative stock price and volume spikes below). Those promotional letters motivated me to investigate the company and write this missive.

I am not long or short Stans Energy; this is simply my view as an independent analyst. I will not predict an up or down side to the stock as it may continue to get swept along in the rare earth element craze by Molycorp, as one of the ever-growing legion of minions (REE Review, September 28, 2010). However, its fundamentals do not meet my investment criteria so I will just stay away.

Never fail to do your own due diligence, inversionistas!

Ciao for now,

Mickey Fulp
Mercenary Geologist

The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia.
Mickey has worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation, and business development. In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.
Mickey is well-known throughout the mining and exploration community due to his ongoing work as an analyst, writer, and speaker.
Contact: Contact@MercenaryGeologist.com
Disclaimer: I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinions and views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com LLC.
Copyright © 2011 MercenaryGeologist.com. LLC All Rights Reserved.

A 100% Accurate Stock Market Indicator… Since 1940

By Dr. Steve Sjuggerud Tuesday, February 1, 2011
In the last 100 years, this indicator has only been wrong twice… And one of those losses was less than 1%.

Since 1940, this indicator has been infallible… Stocks have risen 22% a year when this indicator says “buy.”

We’ve been hard at work crunching numbers, developing our True Wealth Systems project. We have the world’s deepest historical data sets at our fingertips. And we’ve been testing all kinds of investing systems going back hundreds of years.

Our goal is to find what works in investing, over the long run.

Today’s indicator is incredibly simple: It’s the third year of the presidential election cycle. Stocks have gone up every third year of a presidential election cycle going back to 1940.

In the third year of an election cycle, stocks have delivered a total return of 22% a year. For the other three years together the other 75% of the time the total return on stocks has been a single-digit percentage gain annually.

Why such a huge discrepancy?

Legendary stock market analyst Jeremy Grantham calls it the “routine Year 3 stimulus.”

Barack Obama was elected in 2008. It’s now 2011… Year 3. The stock market goes up, the theory goes, in anticipation of Big Government stimulating the economy in the coming pre-election year.

We have a double tailwind this year… Grantham says the Year 3 stimulus will be “spiced up” even more by “QE2” what I call The Bernanke Asset Bubble.

I said this indicator has been infallible since 1940… but what about before then? We tested it back to 1800…

The thing is, until the Great Depression in the 1930s, government stimulus didn’t really exist as we know it today.

In 1929, the lowest tax bracket was less than 1%. And the top tax bracket was in the 20s. Astoundingly, government spending as a percentage of GDP was less than 5% a year until the Depression (NOT including defense spending… which shot up during wars). These days, government spending (including spending by state and local governments) is up over 40% of GDP.

So if Grantham is right, and the routine Year 3 stimulus rally is here, stocks could go up yet again.

Stocks have delivered a 22% total return on average, going back seven decades, during Year 3. We’re in Year 3 now. And stocks are only up about 2% so far. So there’s plenty of room to run, based on history.

This indicator is another example of our True Wealth Systems work… finding things that I wouldn’t believe are possible. So far, in every case, whenever I personally guessed against our systems, I was wrong, and our systems were right…

If this indicator from True Wealth Systems is right, it’s a high probability bet for you to own stocks in 2011.

Good investing,

Steve

FRAC IT, BABY!

As you may have noticed from our “new highs of note” yesterday, the picks and shovels of the oil industry are ripping right now.

“Oil services” is the general term used to describe firms that perform and produce all sorts of “niche” products and services for giant oil companies like ExxonMobil and Saudi Aramco. It’s a diverse bunch, ranging from companies like Bristow Group (helicopter services), to ION Geophysical (seismic field testing), to National Oilwell Varco (manufacturing oil rigs), to big blue-chip Schlumberger (almost everything).

One big trend tucked into this idea is the emerging business of horizontal drilling and fraccing. These incredible technologies have unlocked the natural gas trapped in U.S. shale fields. In just a few years, the U.S. has gone from being natural gas poor to boasting the world’s largest reserves. Now, Asia and Europe are desperate to use these technologies to achieve similar increases in their domestic reserves.

This development has sent Matt Badiali’s S&A Resource Report holding CARBO Ceramics to an incredible uptrend. As Matt told us last year, CARBO is a world leader in the vital “frac ammo” needed to access these fields. The stock is closing in on a 100% gain for his readers. The “frac boom” is here… it’s going to last for decades… and it’s good for companies like CARBO.