Sharewise & Funds Bulletin                                                          Tuesday , March 17,  2009      #469

Peninsula Capital Management   9642 0545                                                                                                          c /- South Suite

rcampbell@peninsulacapital.com.au                                                                                                                    Level 13, 350 Collins Street

Amending Bulletin's name:

This change of name is long over-due. There are  many  listed funds on the market as well as off-market and they shouldn’t be over-looked.  The usual objection to unlisted funds is the lack of clarity and their relatively high running costs, but after so much volatility aided and abetted by shorting and short term trading, there is merit in reduction of volatility.

Cost reductions add to the argument. This is not to say that this is a bad time for direct shares. 

As the note below suggests, things suddenly look a lot better. The potential gains from very over-sold markets could be particularly strong if Obama can cut through in the US and nationalise the banks that need nationalising.

Markets: A sea of green

Apart from one or two stocks still under pressure, there seemed a notable shift today as a rally spread across aAlmost all  sectors of the market. Banks all strong especially Macquarie. Retailers generally weaker.  Woolworths turned up after a sell down yesterday.

In general smashed big leaguers like Incitec are moving forward.  Positive re- ratings are popping up, like

today’s  BUY sticker for Ansell.  Earnings forecasts have been slashed but  even so the prices compensate.

Energy markets

An obvious feature today was uranium  with both ERA and Paladin distinctly firmer- up 6 & 10% respectively.

ERA ‘s chart looks exemplary as it makes a steady well paced recovery from its sell off  lows in October.

 Paladin is more volatile but from a chart perspective now interesting.

Today marked the break out from three months of yo-yoying.

The Uranium Association’s recent commentary on uranium potential in Australia seemed to ignite interest, but just for the top dogs.  Most of the juniors are still flat  on the floor.

Feature:  Galaxy Resources

Galaxy is very confident about its mining plans and markets for its lithium carbonate project.

The presentation makes the point that China will by-pass hybrid cars and go straight for plug-in electrics.

To do this third generation lithium ion batteries like the ones in power tools and mobile phones will be dominant as their life is now five years  (with the addition of scandium ...see all previous commentary).

There are two preconditions:

a)      Electrical Vehicle infrastructure..ie battery swap over stations

b)      Low polluting power.

Better Place is planning chains of EV stations with the idea that the batteries can be charged during the day from solar or when the wind blows etc. Better Place are trying to organise for themselves an annuity stream of batteries that we rent and

they charge.

Fundamental to this is a supply of lithium carbonate. Demand for lithium is expected to treble as the hybrid plug-in car arrives. Only EV’s will save the US car industry as the best EV’s are now costing 1c a mile with far lower pollution per mile. The efficiencies work out to something like the energy equivalent of 100mpg. 

Gold signal: selling of long US bonds

Those are today’s positives, but we don’t ignore the lash and the hair shirt.

As this was associated with a rising $US dollar during the period, this report made little sense to

to some observers as it should logically mean a fall of the $US as money left the US.

Others cringed and saw this as a clear indication that the US will now have trouble funding its deficit.

Gold may jump.

Cake and eating it too: protected fund with upside

INstreet has come up with a twist on the hedged and protected fund, some of which have proved their worth through the down-turn.

The idea in this case is that an call position is bought on the index with 5-10% of a sum,  and the balance invested conventionally in a term. If the market collapses completely there is a total loss of the 5%, but no loss of the balance. If it rises 20-30% (there is an option) then the 5% goes up 20% or 30% but no more.  The risk taker counter party gets the rest.

 With the interest and the gain the return will be unexciting, but it is a return and not as unexciting as purely cash.  As the pay-out is in shares by default with a cash option, this is legally a deferred purchase agreement for shares, not the purchase of a derivative which

it basically is thus allowing super funds to buy a derivative.  

Since the running  time is two years, it is likely that in that two years a 20% lift in the market is almost certain. But if it is sooner, the gain can be cashed out which provides flexibility.