Jim Rogers is still shorting bonds, favors silver over gold and is looking for ways to go long on Russia.

Jim Rogers takes no prisoners in the way he makes the case for commodities. The author of “Hot Commodities” is so bullish—particularly on agriculture these days—that hearing what he has to say can leave you a bit unsettled. When IndexUniverse.com Managing Editor Olly Ludwig caught up with Rogers recently, he said new RBS’ lineup of commodity ETNs that have his name on them are so far superior to the competition.

Surveying the world of agriculture, Rogers talked about the growing shortage of farmers around the world at a time of tight food supplies. He also reaffirmed his bullishness on gold—and his bearishness on bonds—both of which are closely tied to his skepticism that the U.S. and the rest of the industrialized world will ever get out from under all its indebtedness without some additional crisis.

His most surprising revelation? After dismissing Russia for years as a dangerous investment destination, where losing money was almost guaranteed, he said Russian President Vladimir Putin has changed his approach to foreign investment. That means Rogers is poking around the commodities-rich country looking for ways to profit.

Ludwig: What commodity or commodities are flying under the radar that perhaps investors ought to be looking at more closely right now?

Rogers: I’d have to say agriculture, because agriculture is very depressed on any kind of long-term basis. Sugar prices, for instance, are down about 75 percent or so from their all-time high in 1974—38 years ago. We have been consuming more agricultural commodities than we have been producing in the world for the last decade or so. So inventories are near historic lows, which, of course, is a dangerous situation.

But worse still, we’re running out of farmers. The average age of farmers in America is 58; in Australia it’s 58; in Japan it’s 66. In America, more people study public relations than study agriculture. So the farmers are dying and retiring, and no young people are coming into agriculture. Agriculture is facing a serious, serious problem, so prices have to go much, much higher, or we’re not going to have any food at any price.

Ludwig: So a broad approach would serve investors well, say, in a multicommodity futures-based ETF, such as PowerShares’ DBC or United States Commodity Funds’ USCI?

Rogers: I prefer the Rogers indexes, because they are better constructed to outperform the others. But yes, a broad fund.

Ludwig: Let’s talk about your new securities that just went live here in the United States, the broad family of contango-mitigating RBS ETNs. Can you offer some observations about them—the broad one, and the ones focused on agriculture, energy, industrial metals and precious metals—first in relation to the pre-existing Merrill Lynch “Elements” ETNs that are already on the market and that don’t have a contango-mitigating feature?

Rogers: As you know, the markets do have contango and backwardation. It’s always been the case with commodities, and always will be. These products attempt to mitigate the problems of contango. And so far, the ETNs have been able to do a good job, better than the regular, original index. Will that be the case in the future? I don’t have a clue.

…..read page 2 HERE

Porter calls it “the best business in the world.”

It’s the only business in the world that routinely enjoys a positive cost of capital. In every other business, companies must pay for capital. They borrow through loans. They raise equity (and most pay dividends). They pay depositors. Everywhere else you look, in every other sector, in every other type of business, the cost of capital is one of the primary business considerations.

But a well-run business in Porter’s favorite sector will routinely not only get all the capital it needs for free, it will actually be paid to accept it.

* We’re talking about insurance… And the best insurance companies make sure the premiums they charge are greater than the risks they accept by extending insurance. These companies make a profit on underwriting. That’s why Warren Buffett loves insurance so much and used it as the building block for his $217 billion holding company, Berkshire Hathaway.

In his 2011 letter to investors, Buffett wrote:

Insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect-now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others.

Meanwhile, we get to invest this float for Berkshire’s benefit… If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment income our float produces. When such a profit occurs, we enjoy the use of free money – and, better yet, get paid for holding it.

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Gold

Hedge-fund manager John Paulson now holds more gold than Brazil, Bolivia, or Bulgaria…

Paulson, who became a billionaire with his bet against sub-prime housing in 2007, now holds 21.8 million shares (around $3.67 billion) in the SPDR Gold Trust (GLD) – the biggest gold-backed exchange-traded fund. According to the most recent regulatory filing available, that makes him the biggest shareholder, with 4.9% of the fund. His holding represents about 66 tons of gold… meaning he controls more gold bullion than countries like Brazil, Bulgaria, and Bolivia hold in their reserves. Paulson also owns $1 billion of AngloGold Ashanti stock, in addition to smaller stakes in many other gold-mining stocks.

Paulson has been bullish on gold for years… He even has a fund that’s denominated in the precious metal. And he understands the correct way to view gold…

“We view gold as a currency, not a commodity,” Paulson told Bloomberg in June. “Its importance as a currency will continue to increase as the major central banks around the world continue to print money.”

* Legendary investor George Soros’ Soros Fund Management also upped its gold holdings by 49%. The fund now holds 1.3 million shares of GLD.

Paulson and Soros aren’t the only ones who think gold is a good idea right now.

Michael Mullaney, a chief investment officer at Boston’s Fiduciary Trust – which manages $9.5 billion in assets – said, “We see gold as a hedge against the follies of politicians. It’s a good time to garner some protection in portfolios by having some real assets like gold.”

And Alan Gayle, a senior strategist at Ridgeworth Capital Management in Virginia – which has $47 billion in assets under management – said, “It looks as though global monetary stimulus is likely to continue, particularly in the wake of growing fiscal austerity. That puts pressure on the monetary authorities to stimulate the economy and that will debase the currencies and put a bid under gold.”

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Other than the U.S. becoming the dominant player in the global energy market, one of the major benefits of the U.S. shale boom is a resurgence in domestic manufacturing.

Natural gas is a major cost for manufacturers (from steel to chemicals). And as a result of oversupply, low natural gas prices will attract manufacturers to the U.S. My colleague Dan Ferris calls this phenomenon the “American Industrial Renaissance.” He wrote about it in today’s DailyWealth.

The American Industrial Renaissance is a simple-but-powerful wealth-building trend…

Thanks to new drilling technologies, we are unlocking vast new supplies of natural gas in underground shale formations across the country. The increased supply has pushed prices lower. And lower natural gas prices improve the profitability and competitive edge of many American industries – including chemicals, plastics, cement making, steel, power generation, and transportation.

Cheap natural gas produced from the U.S. shale revolution has transformed America into “the low-cost industrialized country for energy,” according to the Wall Street Journal. Savings on input costs can increase profits… which gives U.S.-based manufacturers a huge competitive advantage.

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Record Guns Sales

Shopping malls weren’t the only places receiving an influx of shoppers on Black Friday: According to the FBI, the day after Thanksgiving saw record gun sales, with 154,873 checks conducted, a 20 percent increase from last year. 

Over the three days from Nov. 23 to Nov. 25, there were a total of 283,423 NICS checks, compared with 215,192 last year.

Store owner Nesby said that sales at his store had been busy all week, noting that, following the presidential election, gun owners are concerned about new regulations. Nesby also cited a 15 percent increase in sales among women seeking guns for personal protection..”

“People are worried about gun control restrictions,” Nesby said.

Waterfloods: The Next Big Profit Phase of the Shale Oil Revolution:

The Shale Revolution has turned many retail investors into millionaires.  It’s one of the few long-term trends where Wall Street didn’t make ALL the money!

New tight oil plays are still being discovered—especially in Texas, with the Eagle Ford, Eaglebine and Cline shales.

But everybody is now starting to understand that these shale plays/tight oil wells decline really fast. Whenever you hear about an eye-popping flow rate of 3,000-4,000 barrels a day from a well in the Bakken, consider that these wells can decline 80% in the first year!

That got me thinking: How long can companies grow with those declines? When I started researching this, I discovered what will be Phase II of the Shale Revolution—and it’s a lot more profitable than what we’ve seen so far.

It is arguably the cheapest and most profitable oil North America has ever seen—and in Canada, it’s now “flooding” into the market, as producers once again use old technology to create a wave of new profits.  The U.S. will be three to five years behind because producers are—as I said— still finding new plays.

Canadian producers are using “waterfloods”—pushing water into underground formations to flush a large amount of oil out to nearby producing wells—to increase production and profits.

It’s the next big money-making phase of the Shale Revolution.

Waterflooding has been around for 70 years or more, but the Big Question over the last five years has been, can you do it effectively with tight oil?

The answer is a big “Yes,” and waterflood potential has become so important that institutional investors now see them as major share price catalysts for junior producers in Canada—and track them closely.

Waterfloods start one to two years after drilling the well, in a time window producers call “secondary recovery.” (Drilling is primary recovery.) Waterfloods are cheap to try and cheap to run (with most operations costing just $5-10 per barrel!), and now the industry is seeing that they are sometimes doubling reserves from a well.

“Secondary recovery is where you really make all your money in this industry,” says Dan Toews, VP Finance and CFO of Pinecrest Energy (PRY-TSX.V).

Pinecrest is very vocal about their waterflood potential. They say they can double the amount of oil they recover (called the Recovery Factor, or RF) from a well—at less than $15/barrel—half the price of primary recovery costs, which are over $30/barrel.

“Everyone is trying to find a new resource play,” says Toews. “First you find a resource, and then you drill it like crazy. But the second stage is to go in for your secondary recovery, through waterflooding of some kind if possible.”

To date, Pinecrest isn’t yet flowing even one barrel of waterflooded oil — so their powerpoint slide is just projections. Toews and his team expect to be waterflooding all of their operations by the end of this quarter. But analysts are already seeing the waterfloods as a share price catalyst.

“Just about every investor and institution we talk to wants to know the status with our waterfloods,” says Toews. “The buyside (fund managers= buyside, brokerage firms=sell side — ed.) is very savvy on waterfloods. Once we apply the method, this is what has the potential to shoot up our share prices.”

Realistically, the effects can be seen within 2-3 months, but it’s best to give them a year — or more — of operations before judging their impact. Waterfloods can last up to 20 years or more.

Another Canadian oil junior, Raging River Exploration (RRX-TSX), also explains the waterflood potential in their powerpoint. They expect to be swimming in 1 million EXTRA recoverable barrels of oil per square mile, courtesy of waterfloods — at an even cheaper cost of $5-10 barrel, vs $30 barrel for the first 600,000 barrels.

Raging River is developing the Viking formation in SW Saskatchewan — a large, tight oil play that since the 1950s has had an improved outlook from 2 billion barrels of oil to an estimated 6 billion barrels of oil in place, all thanks to horizontal drilling.

Raging River expects waterflooding to increase its RF from 8% from primary recovery methods (drilling vertical and horizontal wells) using 16 wells/section, to 16-20%. The simple math says that will increase the number of barrels recovered from 480 million at 8% to 1.25 billion at 20% RF.

If Raging River — or any producer — can show a steady RF for over a year, I would suggest to investors those barrels will be worth $10-$15 each — creating huge value to shareholders on a buyout.

Some Viking waterfloods have even seen results as high as 30% RF.

“A small change of recovery over a large oil field is significant and adds a tremendous amount of value,” says Scott Saxberg, President and CEO of Crescent Point Energy (CPG – TSX), arguably seen as the industry leader in the waterflooding revival.

“A lot of these unconventional plays (tight oil) are in high decline. By implementing waterfloods, we can lower the declines in the field, and increase reserves. There’s huge value to that.”

Crescent Point started waterflooding its properties five years ago when multi-stage fracking (MSF) was new on the scene. Now they have five years of knowledge that the method works, and that they can use it across all of their fields.

“We recognized right away to implement a strategy to increase the recovery factor on a multi billion barrel pool,” says Saxberg. “If you change even 1%, that ends up being huge.”

“Waterflooding is the next step past in-fill drilling (ie. drilling more holes in less space to increase ultimate recovery). It takes a lot of time to accrue knowledge and data on how to properly implement it. The sooner you start, the better data you have.”

According to Saxberg, waterflooding is more than just a cheap way to float balance sheets.

Over the course of Crescent Point’s five-year waterflooding program, they’ve developed hundreds of different combinations of waterflooding techniques coupled with fracking techniques, well spacing and plenty of other factors.

“Water flooding is basic, in that you pump water into the ground,” says Saxberg. “So to enhance that, you have to look at what type of patterns are in your reservoir. Now these are unconventional tight reservoirs, so the question was, can they actually be water flooded?”

Again, the Big Answer is Yes, and management teams are now using the promise of waterfloods as a cheap way to float their balance sheets earlier in a resource play. But Saxberg says waterfloods are truly more long-term value.

“They are a long term day-after-day technical grind and process. So it’s not the same as drilling a well and seeing 100bbls/day. It’s a lot of ups and downs and a lot of long term view.”

There’s only one negative here that I see — how will all that cheap oil affect North American pricing, when the continent is already swimming in the stuff?

In the short term, the pro-forma economics of waterfloods are making a splash with both management teams and the market.

But medium term and beyond, it will create a quandary for juniors — the easy money comes after huge capital spending.

I’ve done the research on the top Canadian juniors that will be poised to benefit the most from waterfloods. 

Click here to download this free stock report, while you can!

– Keith

About Oil & Gas Investments Bulletin

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

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

Since Election Day, when the correction in equities started accelerating in earnest, commodities have outperformed stocks. Today let’s look at why this trend looks set to continue, and an easy way to potentially capture commodities’ next move.

Commodities enjoyed a nice rally last week, rising 2 percent on improving fiscal-cliff sentiment, a weaker U.S. dollar and dovish comments by multiple Federal Reserve governors, including Ben Bernanke. As of Monday’s close, commodities were 1 percent higher than the Election Day close, while equities remain multiple percentage points lower.

This confirms what I’ve been saying to my Million-Dollar Contrarian Portfolio subscribers about the equity-market correction.

It’s not about the potential for a fundamental downgrade in the global economic outlook or fears of another debt crisis. In that case, commodities would be weaker than stocks — like they were in May and June when Europe was the No. 1 macro concern.

Instead, the correction is being driven by big-money traders’ year-end performance worries and big-money investors’ feared tax increases.

The big economic data from last week confirmed this belief.

As China Goes, So Goes the World

The flash Purchasing Managers Index figures from the U.S., Europe and China all beat expectations. The numbers from China and Europe were really more-important than those from the United States, as there is ample evidence showing the U.S. economy is solidly in (albeit slow) growth mode.

The Chinese flash PMI broke above the critical 50 level that determines whether there is contraction or growth. It is now at a 13-month high, further suggesting the economically stimulating efforts of the past few months are continuing to take hold.

China’s growth accelerating remains an important positive catalyst for the global macro economy.

In Europe, the headline composite PMIs (which combine manufacturing and services) were little changed (up 0.01 to 45.8). But the devil’s in the details. And the report shows some reason for cautious optimism that the European economy may be starting to level off.

The manufacturing component of the European PMI rose 0.8 to 45.9, but I think what’s more important is the new orders component, which rose 0.9 to 44.1. Other details of the manufacturing PMI suggested future increases as well, including low inventory levels.

This bigger picture is particularly important to watch right now. Although the U.S. stock markets are concerned about the fiscal cliff and a decline into year-end, the global macro economy is actually showing signs of bottoming. And, in the case of China, it shows accelerating growth.

You might have also heard the saying, “As China goes, so go commodities.” With both on the rise, both can be a timely play. However, I’m keeping a closer eye on commodities, and here’s one way you can do the same.

Slow Growth Is Still Growth; 
Here’s One Way to Take Advantage

U.S. political gridlock has halted a rise in equities. But commodities trading, which is more heavily influenced by growth or contraction in the global economy, has been rising as prospects appear to be improving.

And I think the easiest way for investors to add commodities to their portfolio is through the Power Shares Deutsche Bank Commodity Index Tracking Fund (DBC), an ETF that provides exposure to major commodity groups including metals, energy and agriculture.

While I expect the U.S. markets to continue to be held hostage by fiscal-cliff negotiations between now and the end of the year, incredibly accommodative monetary policy unleashed across the globe appears to finally be working.

And if that trend continues, commodities will be some of the largest beneficiaries.

Best,

Tom

About Tom Essaye

Tom Essaye began his financial services career at Merrill Lynch’s Corporate and Investment Banking group. During that time he worked on the junk bond, syndicated loan, and domestic equity trading desks. Then Tom joined the firm’s U.S. Listed Equity desk, where he traded equities for clients on the floor of the New York Stock Exchange. While on the floor Tom managed multi-million dollar equity trades from some of the world’s largest hedge and mutual funds.

When Tom recognized a unique fundamental investment opportunity in the natural resource markets, he co-founded a natural resource and commodity focused hedge fund. He served as the director of trading and investor relations, where he executed the fund’s equity and commodity futures trades.
He spent the final two years at the fund as manager of the energy portion of the portfolio, which totaled one-third of the fund’s assets. Additionally, through his entire tenure at the fund, Tom represented the fund at investor and industry conferences.

Tom has held the position of Vice President of Investment Services at Weiss Research, and now he manages the company’s Million-Dollar Contrarian Portfolio.

Tom is a cum laude graduate from Vanderbilt University with a major in business management and minors in finance and philosophy. And he received his MBA from the Hough Graduate School of Business at the University of Florida.

2013: The Next Move for Stocks …

The Fed has cranked the printing press into overdrive … filling the economy with $40 billion a month to buoy the markets — all in a desperate effort to keep investors at ease. But it can’t last forever.

Will 2013 be the year we see inflation take the stock market to the moon … or will global investors finally cut their ties and send the markets into freefall?

This is the most important question for Americans right now … and getting the right answer can make you profits hand over fist in 2013. Share your opinion with us and get a $49 gift just for answering.