Reflections on a sunny May weekend by R Jennings – Titan Inv Partners

In this, the second of what I hope will be many “muses” by me on matters both markets and wider issues related at intermittent points, I write after enjoying a glorious walk around the simply stunning Valley Gardens of Harrogate with the Mrs (if you’ve never been and live close by, go). Watching all the families, dogs, couples etc. out enjoying the sunshine and generally being at one with a beautiful little patch of this plant earth caused my mind to reflect upon the quite extraordinary character that was Stephen Sutton who passed away this week, falling victim to cancer.

Stephen’s final comments about spreading positivity around the world is in stark contrast to a “certain somebody” and well known “tipster” that regular readers will know I have come to despise. That Stephen touched so many lives with his selflessness and was able to see light in a situation that God knows many of us would no doubt find to be a very dark place, is simply inspirational. Aside from a donation to his charity to fight this terrible disease, the nod to his message to humanity that I shall make this weekend is to expunge the “tipster” and his negativity from my life (which it seems many people are doing in any event…). RIP Stephen.

Talking of charitable endeavours, I must also take my hat off to Robbie Burns – a contributor from day one on this magazine and somebody who I have also come to admire more and more over the past 2 and a bit years. Following the completion of our magazine sale to Burnbrae Media that is owned by Jim Mellon (well done on the Rich List number Jim! And also here’s hoping you are right on your prediction of a cure for cancer in the next 10 years) Robbie made a very a generous donation to a charity close to our heart last week out of his share of the sale proceeds. Thank you for that Robbie on behalf of all the Mykonos animals! For all those who are unfamiliar with Robbie’s background and his achievements in the markets, then you can learn more here – www.nakedtrader.co.uk.

Silver

To matters markets related… I’ll touch upon silver first and the blog that I wrote here last week. It was encouraging initially to see silver rise to scratch the $20/oz mark on Wednesday morning just days after my piece release but, once more, the price action confounded the ever dwindling bulls with a sharp retracement towards the end of the week as we can see from this chart here that is a good 5 day proxy for the silver price being the SLV ETF.

The COT report out on Friday revealed a very modest increase in managed money longs and a continued reduction on producer shorts (see below). Interestingly, the Silver Institute reported last week that 2013 saw record demand for silver of over approx 1081m ounces – up 13% on 2012. Additionally, for the contrarian out there, the fact that silver shorts are back near a 15 year high is music to our ears. To me the Buy case is very much intact and I personally remain poised to add to my bull play on the metal should the “market” push the metal lower over the next few weeks and attempt to take out the old lows around $18.50/oz.

Gulfsands Petroleum

We have been asked to comment upon the shareholder movements last week that involve major shareholder Waterford Finance & Inv Ltd increasing their holding by a shade under 10m shares in the oil explorer to 32.5m shares (27.57%) whilst Soyuzneftgas Capital Limited reduced their holding to nil from just under 8m. Essentially the stocks was sold from one to the other with an additional circa 2m shares being purchased on Waterford’s part. Waterford F&I is the investment vehicle of Russian investor Michael Kroupeev. Kroupeev was of course a major shareholder in Emerald Energy before it was sold to the Chinese state-backed group Sinochem for £532m.To square the circle here, the partner of Gulfsands in their Syrian fields Block (26) is? Yes, you guessed it- Sinochem.

So, the positions on the monopoly board that is GPX are being re-arranged and with the arrival of financier Richard Griffiths in recent weeks this makes it all the more intriguing for shareholders… As I have relayed before, there is one thing that this man really knows how to do and that is make money.

As the end game in Syria draws nearer, with the elections on 4^th June and, it seems the terrible war increasingly being pushed towards a victory conclusion by the Assad regime, at my recent meeting with GPX management and CEO Mahdi Sajjad they made it clear that they do not expect the EU sanctions to remain in place perhaps beyond the end of this year (that of course is pure conjecture). GPX posted their investor presentation this week and the one take away for me that stands out here is the comment by management that they stand ready for the field’s operation once more and can produce immediately 20,000 barrels a day. Net effect of such a move on the stock price? In my opinion a price starting with a 2 (and 2 digits after it not 1!)

I personally took the opportunity to top up my own holding in the shares on the dip back to the late 40’s just over a week ago and rather suspect that I will not have the chance to do so again now. Market speculation is that in anticipation of a lifting of the EU sanction over the next 12 months, that Waterford are positioning themselves with a solid bid platform (a move over 30%, including acting “in concert” with another shareholder triggers a bid per UK takeover rules). Not only I, but Richard Griffiths and other institutional shareholders know what the embedded value of this company is, and it must be remembered that the CEO Mahdi last bought shares for his family trust at 117p in May 2012 and Chairman Andrew West at 179p. Mahdi Sajjad actually holds over 8m shares in total with the entire management team approx. 10% in aggregate. If a bid is actually tabled then I would guess that somewhere around 150p would stand a chance of success amongst the balance shareholders.

The alternate explanation for the increased stock holding on Waterford’s part of course is that they are ensuring they have a blocking stake (25% typically required) in the event of a third party low ball bid by one of the usual suspects – CNOOC (China National Offshore Oil Corp) or Indian Oil Corp. Whichever way you take it however, Waterford’s and Griffiths’ stake building speaks loud and clear that they, unsurprisingly, see value in the stock at this current price.

One final point, at my meeting with management they relayed their own frustrations at the current equity value and while not overtly saying so, I got the impression that when out of the closed period (which was early April) that they would be looking to buy stock. The absence of purchasing could be for many reasons or, it could be that they are “restricted” from doing so. This would of course add credence to some type of corporate news be it an approach or news on the Morroco drill…

Japan

We last wrote about Japan on the 8^th April. It is fair to say that our long positions on the Nikkei have been pretty uninspiring since then.

There is not a great deal to say about Japan that is anything other than simply a re-iteration of this piece but I note a continued absence of bullish calls on the market by other pundits. With the chart below revealing the 19 and 37 wk exponential moving averages plateauing and converging, I rather suspect that we are gearing up for another move to the upside and I stand by my call that the index will take out the highs around 16200 before they year is out. That would be a (hedged) 15%+ return. I doubt that the US and UK indices will be putting in such an upward trajectory of the same magnitude over the balance of this year. Convergence’s like this with such bear sentiment around generally prove to be contrarian signals, and coupled with an oversold MACD measure and flat-lining RSI (all circled), I fancy the odds of a move to the upside somewhat more than to the down. I intend to add to long positions in the days ahead here.

AAII Neutral Measure – what is it telling us?

Finally, a quick mention of the AAII measure released last week (see below) in which the neutral measure moved up to 44.3% from an already elevated level. In fact, this is one of the highest neutral readings for quite some time. As this figure is so high, then both bullish and bearish measures are also below their long term averages. Is there anything to take away from this data? Well, to me it tells me that a great deal of investors are (a) unsure and (b) likely out of the market. It could also, when added to the bullish figure, spell complacency thouhg. In any event, I took the opportunity to begin to build Put options on the S&P 500 for later in the year this week whilst volatility was low. I like cheap insurance!

Blinkx

One quick one on Blinkx. I bought stock in this last week in the late 50’s and into the 60’s believing the shares oversold on a weekly basis (as the chart below pays testimony to). With the shares approaching 50p, the IP and cash backing makes them worthy of a punt at least in my book. I am looking for 80-90p next week.

Clear disclosure – Richard Jennings and/or Titan funds have holdings in Gulfsands Petroleum, Blinkx and silver and Japan. This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances.