If you missed the chance to buy into the computer industry when it was young, this is a second shot…

Currently, the mainstream electronics industry processes data by moving bunches of electrons about in huge batches. Think of the components in your PC as electrical plumbing. Data are usually stored as batches of electrons. Imagine your computer’s hard drive as a bunch of very small buckets, some full of water, some not. This will change.

Improved materials technologies from emerging nanosciences are allowing us to replace batches of electrons with the smallest individual unit: the electron. As a result, computers will work at far higher speeds. Additionally, far less electricity will be required to do the same amount of work.

Much of this exciting news is being ignored by the market. It’s an unfortunate truth that investors often lose sight of long-term opportunities to create wealth because they get distracted by the short-term noise and news in the markets. When it comes to big transformational technologies, don’t worry about timing. The returns that disruptive technologies yield justify getting in early.

Quantum Superposition

One important quantum effect that will be used in future generations of computer technology is “quantum superposition.” In a nutshell, this means that a quantum particle can exist in multiple states and everything in between at the same time. This is because a quantum particle, such as an electron, behaves as both a particle and a wave.

Have you heard of the particle wave theory? In practical terms, it means that bizarre and counterintuitive effects occur on very small scales, and they can be harnessed.

This “quantum superposition” effect will, for example, utterly transform how we do “computer math.” Currently, nearly everything done by computers is done in binary. The smallest piece of information a computer handles, the bit, is either one or zero. A quantum computer, though, would be able to store and work with number systems other than binary.

This means computers would become exponentially more powerful because each “quantum bit” (qubit) could store a much greater range of numbers than the two that binary math restricts us to. Imagine a laptop with the computing power of the world’s 10 most powerful supercomputers. Then you begin to grasp the potential of quantum computing.

Decoding Quantum Encryption

Quantum computing also offers the means of making our communications and business transactions far more secure than they are today. Quantum cryptography exploits several remarkable effects of “quantum entanglement.” One is the ability to generate pairs of utterly unique and unbreakable keys. Basically, two random but identical particle keys can be created using entanglement. Since reading a quantum particle alters it, any effort to eavesdrop on communication is detected and that communication is either disrupted or ended.

Using this technology, we can create completely secure communications networks. Recently, Toshiba’s R&D labs announced the successful testing of quantum cryptography over fiber-optic networks. Austrians were able to send entangled photons between two Spanish islands nearly 90 miles apart.

Spintronics

One of the likeliest quantum technologies to go mainstream is the field of spintronics. This is the exploitation of different electron states. The only property of the electron that we use in electronics now is charge. Electrons, however, have another property called “spin.” Because we can change and read this spin, it can be used to compute. Already, the tech giants are investing in this technology. And there’s a reason.

I’ve written a lot about HP’s work on memristor technology. Memristors are going to provide the next great leap in computer technology. HP has been making rapid and well publicized advances. It could, in fact, have product on the market next year. This initially concerned me because HP is too big to get us anything close to a memristor pure play.

Fortunately, memristors can be built using techniques other than HP’s. My associate Ray Blanco has been poring through patents and tech journals. What he’s found is enormously exciting.

Basically, a number of other groups have made similar memristor advances using different technologies. One is based on spintronics. Seagate Technology (NASDAQ:STX) scientists believe, in fact, that spintronic-based memristors would be more efficient and customizable than the ion-based tech debuted by HP’s labs. There are other players here, and we’ll tell you about them in the future.

The big question now, however, is not which of these technologies will emerge as the best solution. The question we’re looking at today is who will build these new components. Who, in effect, will be the Intel (NASDAQ:INTC) of the future?

For transformational profits,
Patrick Cox

Source: The Quantum Leap of Quantum Computing

Chavez’s government and seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA).

PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

PDVSA has attempted to slash expenditures 60% by reducing salaries for managers by 20% and imposing a wage freeze on the majority of its employees. But the company still owed contractors and suppliers $13.9 billion by the end of last year, according to The Wall Street Journal. The majority of that total remains unpaid and some of the debt dates back to last August.
Irate over a growing backlog of invoices, many of the companies threatened to halt operations – something PDVSA and Chavez can ill-afford. The company is accounts for about half of Venezuela’s revenue, and is largely responsible for funding and administering the social programs that Chavez has employed to court popular support.

PDVSA brought in more than $120 billion in revenue in 2008, but this year, it will likely make just $50 billion.

With its back against the wall, PDVSA is demanding that service companies accept a 40% cut in their bills.

“We will not pay contractors that have tried to speculate and don’t care about our company,” PDVSA President Rafael Ramirez said in April. “We have to renegotiate what we pay them.”

Last Friday, the government began expropriating equipment and projects from foreign oil service firms that refused to renegotiate their debt. At least 12 drilling rigs, more than 30 oil terminals, and about 300 boats were seized, the according to The Financial Times.

“To God what is God’s, and to Caesar what is Caesar’s,” Chavez told a throng of supporters, the FT reported. “Today we also say: To the people what is the people’s.”

Tulsa, Okla.-based Williams Cos. (NYSE: WMB) was among the firms that saw its assets taken. The firm said last week that it would write down a $241 million payment default by PDVSA. Drilling contractor Helmerich & Payne Inc. (NYSE: HP) is due $116 million from PDVSA, and is idling seven of its 11 operating rigs in the Andean country while it negotiates payment.

“Chavez has sent a shot across the bow for the entire oil service sector,” Patrick Esteruelas, an analyst with political risk consulting firm Eurasia Group, told the Journal.  “This is a very strong message for oil rig companies playing hardball and reluctant to agree on a write-down of their bills.”

But the brash gesture will also bring negative consequences that could significantly jeopardize the nation’s oil production, which is already in decline.

Venezuela’s oil production fell to 2.36 million barrels per day (bpd) in 2008, after climbing as high as 3.18 million bpd in 1997, according to the International Energy Agency (IEA). The Organization of Petroleum Exporting Countries (OPEC) estimated the country’s output was about 2.24 million bpd in December.

The expropriation of the oil service companies “increases the risk of additional declines in oil production since PDVSA is not likely to be as efficient an operator of these businesses and assets as the private sector contractors,” Goldman Sachs Group Inc. (NYSE: GS) said in a report.

The seizures “might turn into an expedient and quick political solution to the current large payment arrears to suppliers, they might also entail large medium-term costs in terms of foregone production and overall economic efficiency,” the report said.

The expropriations will also crimp badly needed investment, which in Venezuela is declining almost as quickly as output. Private investment in the nation’s oil sector fell to $500 million last year from twice that level in 2007, BusinessWeek reported.

“Venezuela’s aggressive fiscal terms and the country’s persistent trend toward nationalization of oil industry activities will make it more and more difficult to attract foreign investment and competitive bids from qualified operators,” David Voght, a director at IPD Latin America, which advises several international oil companies operating in Venezuela, told the FT.

PDVSA has slashed investment in new energy projects by $10 billion. And now the company, which is already overburdened by Chavez’s political and social agendas, will have to absorb 8,000 new workers into a permanent payroll that already exceeds 75,500 employees – nearly twice the number employed when Chavez took office a decade ago, according to the Journal.

And without adequate investment, there’s little hope that Venezuela’s output will reverse course anytime soon.

“PDVSA has to invest in the business,” James L. Williams, heads of oil consultancy WTRG Economics told BusinessWeek. “You have to feed a cow if you expect it to give milk.”

Source: Venezuela’s Oil Production Squeezed by Chavez’s Heavy Hand

Mining: the latest “wisdom” from Wall Street is that commodities have or are in the process of peaking. Don’t believe it. The 95 percent increase in iron ore prices negotiated between China and Rio Tinto a couple of weeks ago shows how ridiculous that line of thinking is. (My favorite mining-related company: Bucyrus (BUCY)).                 

Energy: with energy prices this high, there has to be some good investments out there and there are, but it’s not in Big Oil. I like a medium sized oil company from South Africa called Sasol (SSL).

Fertilizers: This sector is a little more volatile than I would ideally like. And fertilizer companies have gone up a great deal already. Potash Corp. (POT) seems to be the favorite among analysts, but I like Terra Industries (TRA) better.

Oil support/transport: Some analysts like the pipelines. I like the rig companies better. Helmerich & Payne (HP) is an outstanding one.

Health care: Following the Boomer into their old age can’t be a bad strategy. Medical Properties (MPW) is a real interesting health care REIT with loads of upside.

Alt Energy: Solar rocks. Now that China has had their 50 percent correction, I’m liking Suntech Power (STP) all over again.

Precious metals. Gold and silver are going up, baby. The ETF GLD rises with the price of gold. That’s sounds good to me.

Everyone should have a recessionary handbook in their back pocket. This is mine.

Source:  The “Seven Up” Recessionary Handbook 

Q: What are your thoughts on the drillers? – J.D.

A: That’s a pretty broad question, because there are several different kinds of drillers. However, high oil prices are good for all of them…

Natural gas, for example, is the commodity of the minute. The price of natural gas rose 113% since its low of $5.25 in September 2007. That’s important because 79% of the rigs drilling in the U.S. are looking for natural gas, not oil.

High natural gas prices mean strong demand for drill rigs. More demand means higher day-rates for the rigs. That means it’s a great time to own drillers. But is it a great time to buy?

It is… if you can find ones that aren’t making new highs already. Helmerich & Payne (HP), to pick one natural gas driller, is hitting all-time highs right now. You’re paying 15 times earnings and taking on the risk of the natural gas price falling.

I wouldn’t buy HP right now. But I do think there are other opportunities. I’m researching a couple for my S&A Oil Report subscribers right now.

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Q: What do you think of all the protests against high gas prices? – R.T.

A: In my introductory biology class at Penn State, my professor told us a story…

Some years ago, in central Pennsylvania, there was an abundance of rain, and the clover grew thick. Lots of clover meant the rabbits had plenty to eat. Happy rabbits did what rabbits do… and pretty soon, the place was overrun with rabbits.

Lots of rabbits meant the foxes had plenty to eat. They got fat and sleek. They also made lots of baby foxes. But after a while, those rabbits ate all the extra clover. That meant they weren’t making more rabbits quite as fast as before. Fewer bunnies meant more hungry foxes.

Eventually some of those foxes starved.

In terms of oil, we’ve run out of clover – big, easy-to-find, easy-to-pump deposits. So refining companies (the rabbits in our story) are hurting. There is too much competition for too few resources. Now the airlines, truckers, and SUV drivers (our foxes) are getting hungry.

The world’s demand for fuel is catching up with an industry that really hasn’t changed much since the 1970s. Oil and gas prices must respond to market forces (and go up) to make us change. The protests are simply the whimpers of starving foxes.

Note: I got loads of responses to my request for more gold funds…

The big one you mentioned was the Central Fund of Canada (CEF). This $1.5 billion fund holds gold and silver bullion. Currently, shares trade nearly 9% above the value of the fund’s assets. That means you’re paying $90 more than you need to on every $1,000 you invest in the stock.

That’s fairly unusual among gold funds. The largest of them all, GLD, trades at a 0.42% premium to its assets. IAU trades at a 0.16% discount to its net asset value. If you are just trying to buy gold, find a fund that is liquid and trades close to its net asset value.

Another mixed fund is the Gabelli Global Gold, Natural Resources, and Income trust (GGN). The fund focuses on global natural resource and mining stocks. So it isn’t a pure play on gold. This fund’s largest holding is actually Petrobras, the Brazilian oil company. It’s trading at nearly an 8.5% discount to the value of its assets and it uses creative financial strategies (selling covered calls) to generate a 5.8% yield.

Finally, you’ve got Deutsche Bank’s Double Short (DZZ) and Double Long (DGP) Exchange Traded Notes. These two funds use gold futures and treasury notes to return twice the fall or twice the rise of gold, respectively. These funds are extremely risky, since they double the performance of the metal. You shouldn’t ever invest more money than you can afford to lose into this type of fund.

Good investing,

Matt

P.S. If you’ve got a question about commodities or commodity producers, shoot me an e-mail. (Bear in mind, I can’t give out personalized investment advice.) I answer reader questions every Wednesday in Growth Stock Wire.

Source: The Commodity Investor Q&A Wednesday, June 4, 2008

The deal would form the second-largest group in the lucrative but highly competitive IT services market and help HP mount an assault on IBM’s leadership in the sector. But HP’s shares fell by around 10% on the news.

Will the deal work?

HP boss Mark Hurd didn’t emphasise the “significant” cost savings, so investors concentrated on the fact that EDS is a relatively low-margin and low growth business, said Lex in the FT. But therein lies opportunity. HP is aiming to bulk up its small services business, especially in EDS’s top area of large IT outsourcing contracts, and HP has both the required capital and scope to take short-term losses in return for longer-term profits.

Hurd managed to give rival PC maker Compaq’s margins a significant boost when he inherited it after taking over from his ousted predecessor, said Rob Cox on Breakingviews.

Another potential difficulty is the likely culture clash. Poor integration management hit HP when Compaq was taken over, as Robert Cyran said on Breakingviews. “Whether HP can repeat the good parts of the Compaq acquisition” – the improved profitability in Hurd’s tenure – “without the bad remains to be seen.”

HP: 12m change –2%

EDS: 12m change –14%

Source: Hewlett Packard Sets its Sights on IBM