Gassing On About Gas

The best performing US sector YTD has been biotech and pharma, with the stark rise in share prices for the sector creating a high overlap of risks for hedge funds which have piled into many of these stocks.

On Tuesday Nasdaq announced that ProShares will list two new exchange-traded funds (ETFs),UltraPro Nasdaq Biotechnology ETF (UBIO-Q) and UltraPro Short Nasdaq Biotechnology ETF(ZBIO-Q), which will both began trading on Tuesday. Both funds track the Nasdaq Biotechnology Index.

UBIO seeks to provide 3x and ZBIO seeks to provide minus 3x the daily performance of the Nasdaq Biotechnology Index, before fees and expenses. The Nasdaq Biotechnology Index is a modified capitalization-weighted index of companies listed on it which are either the biotechnology or pharmaceutical industries.

ProShares is the world's largest provider of geared or leveraged ETFs. Geared ETFs allow investors to easily go long or short based on their views, whether it's hedging against downturns with inverse ETFs or using leverage ETF to magnify exposure to a benchmark.

A few addenda to my note on Monday about how there are likely investors in the USA from countries where companies have more cash to spare than even the M&A hungry US contingent. Earlier this week i read about Canadian forestry companies pouring into the US southeastern states to buy timber. They seek to escape a beetle infestation of British Columbia forests, ultimately blamed on global warming climate changes.

Our former chemical play from Germany, BASF (BASFY), sold because its feedstock in Europe is too expensive for it to compete with American chemical producers, has reacted. BASF plans to build the largest single-plant on the US Gulf coast to take advantage of low natural gas prices here vs what it pays in Ludwigshafen in Germany which will cost euros 4 bn ($4.48 bn) this year alone. It will finance the project by selling assets and borrowing.

Gassing On On Gas

*Down Under natural gas and electricity producer, distributor, and retailer Origin Energy will cut costs and capex to adjust to lower demand from the Australian grid. It will slash costs (including personnel) in the current FY and next by A$100 mn (about US$77 mn). While it did not set a target for capital spending this year, it plans to cut capex by A$50 mn in 2016 to A$250 mn. The purpose it to break even by 2017. It was recently downrated by Standard & Poor's to BBB-, a low investment grade.

We own OGFGF because of its stake in the Australia Pacific LNG project on Curtis Island, in Queensland, which is being built supply liquefied natural gas from coal seams. OGFGF partners in APLNG alongside Conoco and Sinopec. APLNG's first line is on schedule to go live early next year, and it second to come on early in H2. Now there are doubts that, given its economic weakness, China does not want to off take the gas next year and aims to delay the ramp-up of production. Apart from slower growth, the Sinopec partner in APLNG is also seeking a slowdown because it cannot complete the import terminal in Guangxi province in south China in time. Sinopec owns 25% of APLNG while Conoco and Origin each own 37.5%. Conoco can afford the wait better than OGFGF.

The APLNG plant has been under construction for 4 years already at at a cost of A$24.75 bn. By the end of next summer it will be turning out up to 9 mn metric tonnes of gas per year. Who will buy it if not the Chinese? LNG prices in American Pacific Ocean sites have fallen because of new sources. Asian Pacific rim countries outside China do not have large scale re-gasification facilities. But there are potential markets in India and Pakistan and Australia itself (east of Queensland) for LNG. And floating storage and regasification units now operate in Indian and Pakistani ports and link to local pipelines. But it is a rather long way to BASF's Ludwighafen plant in Germany.

After Martin Ferera recommended this stock I became a believer. This is one of the shares I want to avoid selling during the transfer of my account from e-trade.

*Delek has been stranded by its partner. The latest word from Israel is that the Leviathan gasfield partners Delek Group and Noble Energy will be required to end their combined domestic marketing of what it produces after 10 years to satisfy Israeli authorities worried about a potential monopoly. NBL has reportedly already agreed to this with conditions for the government requirement regarding infrastructure, customers, and implementation, according to Globes Israel, a website. This presumably will allow construction to bring on the huge offshore reservoir. NBL owns 39.66% of the field, two subs of DGRLY 36.33%, and a smaller Israeli firm the rest. The field is expected to come on stream in 2017 and the 10 years will start then. Last year an Australian firm,Woodside Petroleum, negotiated to acquire 25% of Leviathan before being driven off by Israeli conditions.

NBL specializes in finding offshore gas in troubled or troubling places, most recently in the waters of Ecuador's Galapagos Islands, where Darwin figured out evolution. Our Galapagos NV shares are discussed below.

*The Alliance Pipeline LP which runs from the Bakken shale fields was put under review by Dun & Bradstreet in Canada with negative implications because of increased business risks. Our Veresen owns half of Alliance. Analysts from Scotia brokerage note that DNB is the outrider with an A rating for Alliance while S&P and Moody's rate it BBB+ and Baa3 respectively. If Alliance gets downrated more widely, its cost of money will rise hurting FCGYF.

*SAP of Germany and Infosys of India, both software firms, are joining forces in helping the completion of oil and gas wells. They implemented a Smart Oilfield Services Solution for FTS International, FTSI, which offers wireline services. These help the engineering and logistics of new or refractured wells containing hydrocarbons mostly done by hydraulic fracking. The Odessa, TX firm has a jv with Sinopec, completing the circle. It also competes in reservoir optimization with our Computer Modelling, CMDXF of Canada.

*Ecopetrol of Colombia will sell $500 mn in 10-yr bonds to be able to continue to drill despite low oil prices. The stock is up on the news. Another pipeline, the Transandino, was bombed by the FARC on Tuesday and also is leaking crude into a river. Because EC is state-controlled it is a political target for the rebels despite talks going on in Havana.

Healthcare

*Canadian CAE, a maker of simulation systems for training aviators, also has a side-line in medical training, helping to explain why it was recommended by Patti the Biotech Maven who is also the mother of a pilot.This week at a Belfast medical conference was unveiled a new system called Vïvo (which to avoid patent problems has two dots over the first vowel). This is tablet software for healthcare training on a tablet computer. Facilitators will be able to create full simulations for tablets and also operate high-fidelity simulations on the fly to create patients so as to teach trainees safety protocols or how make notations in real time. It alternates between physiological models and full manual control as sessions advance. Initially for METIman programs it will probably also be extended to other lines for pediatric or surgical doctors.

*Lucentis, the eye drug Novartis acquired by snatching Alcon (which we owned) without paying US shareholders as handsomely as it paid fellow-Swiss Nestle now faces Indian competition. Despite now owning NVS there is a certain grim satisfaction on the opthalmology drug used to help diabetics keep their sight and against wet macular degeneration being copied. It is a recombinant monoclonal antibody and marks a new level of biosimilar sophistication in Indian generics. It also shows up the way NVS, allegedly reformed, tried to block another drug of similar composition, Avastin, from archrivalRoche from being sold for vision problems at a much lower charge. Avastin is a cancer med which stops angiogenesis (tumors encouraging new blood vessels to supply them) which is also the problem in macular degeneration. Avastin is packaged and sold for eyes as Lucentis, off-label in the US. Now there will be a made-in-India generic from Intas.

Despite this, NVS was upgraded to buy from neutral by Bryan Garnier, a European brokerage and investment manager.

*Galapagos nv (GLPGF) shares gained 3.5% so far mainly on reaction to the news that its CEO and founder bought lots of its shares using warrants (Belgian for options), presumably because he knows something good. It briefly hit $57 on Tuesday and was recently listed in the US, it might be a candidate for that ZBIO triple short biotech-pharma launch.

Telephony

*Here, the mapping and navigation software from Nokia (NOK), will now link its sensor data collected in vehicles with a standard interface to the cloud, starting with automated vehicles. Data developed in one car about road and traffic conditions is useful when cloud-sourced to those in cars following behind it. For example, information about a car crash or a traffic jam or icy conditions—or perhaps a speed trap.

*Vodafone was upgraded from neutral to buy by Nomura with a new target price of GBX 290 from an old TF of 235.

Fund Fun

*With my new PAK ETF shares in hand I set out to sell my HK:3106 which also are Deutsche Bank MSCI Pakistan trackers. The US quote I got from e-trade was $1.65 bid $3.25 ask. The brokerage is closing down its global trading facility and its marketmakers, who pay for access to clients (how e-trade keeps commissions at $7.99/share) are lying in wait. I will just keep them in the account until I get a better deal. Note that there is virtually no exchange risk in Hong Kong whose currency is fixed against the US$. So the spread of more than 100% is simply outrageous. I want to sell in Hong Kong where I bought and where I already paid acceptable extra fees for exchanging currencies and a foreign brokerage commission much higher than $7.99. My college friend, TC Ali, a Lahore widow and stockbroker, found the share. E-trade didn't even help with that.

Deutsche Bank sets up clones of its ETFs in different jurisdictions and currencies which track each other.

*Chris De Muth jr, of Rangeleu Capital, writing in www.seekingalpha.com, suggests that the no. 1 pairs trade, his top idea, is to short Tencent, TCTZF, while going long Naspers, NPSNY, its 35% owner. Naspers' other assets like mail.ru and TV and Internet media in Africa are valued at less than its stake in Tencent. So this is an Africa play. In fact it was attempted by our Africa Opportunity Fund, AROFF, (which also trades more often in London as AOF, in dollars.)