http://www.financialsense.com/Market/wrapup.htm

Martin Goldberg had an interesting market close wrap yesterday that some readers might find interesting--particulary a graph showing the correlation of the gold bugs index with the S&P Mid cap

"Once again, the $HUI gold bugs index is trading at a critical level where it is threatening to move from a difficult and somewhat frustrating corrective pattern into its long term Wave 3 up. If there is a reason for skepticism, it is in the fact that during this year gold stocks have tracked all stocks. This is clearly illustrated with the overlay of this year’s $HUI action with that of the S&P mid cap index. The correlation looks too good to believe that this is a result of chance or coincidence or even precious metals fundamentals. It makes one question if riding gold stocks is the same as riding in the same boat as all stocks."
-------------------
I know that many of Bill's readers have asked questions about what will happen to their gold stocks in a larger market demise. Here's something that might clarify that concern.

Here is an article I pick up at Jesse's site: http://www.geocities.com/arthurcutten/jesse.html

Cassandra Does Tokyo

The Sordid Business of Predicting A Crash
March 13, 2007

First let me state that I am patently NOT in the business of prognosticating stock crashes. That said, please allow me to forecast one that, against all good, common sense, I believe, may be coming to a bourse near to you rather soon, in perhaps the next 30 to 40 trading days. And I say "good, common sense" because statistically predicting crashes is, for those who pursue it, a truly rotten profession. Far more difficult than trying to predict, say a "0" or "00" on the spin of roulette wheel (at a mere 1-in-37). It is more akin to 1-in-120 call, AT BEST, and perhaps a 1-in-500 or even 1-in-1000 longshot-of-a-call at worst, assuming of course that I do not need to accurately flag the precise day, but or days, but only the general vicinity in time.

Surely you will ask "why" I have embarked upon so ludicrous and statistically unrequited and unrewarding a path. The first reason in all honesty is that since I am not paid for this forecast, I cannot be fired for being wrong. Second, because I am master of my own fate, and because I am rather reasonably hedged and crash-neutral insofar as market exposure is concerned in my professional portfolios, I needn't worry about firing myself, for being wrong. Third, IF as a result of this rather bold and outlandish prediction, I turn out to be correct, then I shall have no problem (with all of my readers' testaments in hand), in pursuing a new (and leisurely!!) career as an Investment Letter Writer, one that I can pursue from a suitably comfortable location, be it surf-side or slope-side (for which the prices of said bricks & mortar will - no doubt - be dramatically reduced in the event).

The more skeptical amongst you will no doubt endeavor to ask, what manner of evidence I might possess to back up this apparently farcical and visceral hunch. And here, I will reveal to you, that which is of true value. It is not a secret of dark magic or of statistical smoke & mirrors, though it is somewhat obscure, and off the beaten path of ordinary observers. For "it" is buried deep in the cross-section of the distribution of stock-market returns, in particular, within the higher moments, which, I would hold out to my readers, have a remarkable tendency to (historically speaking) whisper things that are terribly important, be it "danger" or "opportunity".

To be more specific, I am referring to the cross-sectional skewness of daily returns in the investable portion of the US equity market, and, even more precisely, a three-month moving average of such a measure, systematically removing of course, the most extreme daily observations. Typically, this measure tends to have a negative sign, which if my feeble knowledge of statistics serves me right, implies that the associated tail risk of the distribution sports a negative sign, in relation to the average daily return (which has incidentally over the past 25 years typically been (small) positive. The kurtosis [1] then, a sensitive cubed measure, relates to us just how far from the mean that [usually] negative tail lies. Periodically, in the US, this measure of cross-sectional skewness of returns climbs to positive territory, and, on a few even rarer occasions, the departure into the positive is rather greater and more elongated than at others. These, historically speaking, have coincided with, or presaged significant market events.

On some occasions (as one might expect), such a flip-flop into a state of highly elevated positive skewness has FOLLOWED extreme corrections such as those seen in the Aug through October period in 1987, the May through early October period in 1998, or the June 2002-> March 03 capitulation of the NASDAQ. On such occasions, it has been a benign signpost of recovery, signaling what momentum traders term: a breakout, or trend-continuation, of sorts. This is intuitive since, following a grand capitulation, with the veil of fear and uncertainty is lifted, gaps to the upside, recovering earlier losses, are unsurprising and tend towards continuation. Such moves are typically consistent with, and converge towards, some future sustainable intermediate-term equilibrium rather than away from it.

On other occasions however, such positive skewness periodically follows elongated positive return runs that resembles something like a melt-up. At such times, positive returns perhaps have induced panic buying, or panic short-covering that causes the tail-risk to have - at these instances an uncommonly positive sign. Such was the case in April to August run-up in 1987, the second quarter of 1998, the fourth quarter of 1999 into the beginning of the year, and, yes, mid-February 2007. In fact, mid-February 2007 saw the most elevated measures seen I’ve seen in the US market since my data for this commences 25 years ago. Now Ill admit that these may not be apples-to-apples comparisons since the nature and number of listings in the investable cross-section has changed over time, but nonetheless, the elevation recently witnessed is, in a single word, unprecedented.

None of this will escape practitioners, who can see it and smell it in the trenches, perhaps using other technical descriptive terminology or endogenous market indicators, but it is, nonetheless an additional systematic tell-tale, less commonly observed by most. Now add to this a kurtosis measure of the same cross-sectional returns. Somewhat expectedly, during selective panics, (for example the 2002 tech-wreck), skewness is highly negative, and kurtosis is highly elevated signaling a negative tail well-departed from the mean. During 1987, by contrast, or September 11th, the crashes were rather more democratic, and while skewness was negative, kurtosis was not nearly as elevated as at other times of less-universal panic. For during a crash the average return tends to be rather negative, with the tail not too far off the mean, as correlations tend to converge. Importantly, at both significant tops AND recovery rallies, kurtosis is typically diminished, or at a local minima. This may reflect investor behavioural preferences to take profits on large the positive tail, but it nonetheless has a subduing effect in keeping the tail closer to the mean on those occasions when the skewness does turn positive. Yet again, in mid-February, somewhat unprecedentedly, we have witnessed very elevated positive skewness AND reasonably elevated kurtosis. In my experience, this is twilight-zone stuff. All we need now is Rod Serling to tell us what it means.

My take is as follows: we are at a monumental turning point in Americas twenty-five year experiment in leverage, and systemic speed bump in Bretton Woods II. We are seeing the telltales of a liquidity-induced blow-off that’s been fueled by ever-easier credit and nearly free-money that, up until now, has fed nominal earnings growth, but that is on the cusp of rolling over, on many and diverse fronts due to systemic contradictions, inconsistencies and imbalances. Yet some high-rollers awash with investable funds and brass cojones seem to be betting that even more liquidity (the Fed "put", Bernanke's helicopter, whatever) will be thrown at it by authorities, that will assuage any drop in nominal prices. AND they must also believe that this liquidity, like that which has been thrown at markets since 2002, will continue NOT to spike rates, and NOT to puke the USD, and NOT cause the ire of Pelosi and her labour constituents, and so not fan inflation but further fuel yet another bout of asset price spirals such as those seen in commodities, stocks, Art, REITs, Credit Spreads, beachfront property, wine, Chelsea homes, and the famous Honus Wagner T205 baseball card. The era of risk anaesthitization is ending.

Understand, I am not a bear looking for an excuse to be bearish. Rather, I am looking at an indicator of an unusually rare market occurance, searching for an explanation, whose more plausible answer is pointing towards something eventful, with returns that are likely to be more volatile, and with a greater frequency of negative signs than those witnessed in the preceding four years. As an immediate forecaster of things bad, I must admit to being unnerved by the post-hiccup jack-in-the-box company of Mssrs. Faber, Edwards, and Tice, irrespective of their esteemed and cogent analyses. But IF the whispers of "the higher moments" again prove prescient, it is highly likely that the brief turbulence witnessed last week is but a proverbial shot across the bow presaging an episodic fit that will, in hindsight, be measured in months, and nominal losses into measured into double-digits.

Sordid Business of Predicting A Crash (con't)
April 5, 2007

Kurtosis in the daily cross section of US equity returns is as elevated and extended as it has ever been, YET the skewness remains highly positive, a truly anomalous circumstance. Historically, this has reliably foretold something ominous to come. Today, in answering the question I posed and whose answer I hinted at in my early March post of similar namesake, I will reveal why this happenstance exists. The answer is: "Private Equity".

Collectively, they [private equity], and the speculators who move security prices on the basis of rumours surrounding "who's next", are the ones responsible for the positively-signed, bountiful premiums, gapping certain stocks in the distribution higher in relation to the the rest of the distribution, which only inches forward. And as Stephen Ratner forthrightly said in his Bloomberg interview detailed below, they [his own private equity firm, Quadrangle] will continue to take things private so long as liquidity is abundant AND lenders are willing to buy debt at rates and on terms that, as Ratner says, make little economic sense from the perspective of the lender.

So in itself, the higher moments of the US equity market are whispering "bubble", though the bubble is seemingly located in the credit markets, with the equity market but a reflection thereof. This doesn't leave equity markets free and clear by any stretch of the imagination, for the chain of dependencies and linkages are many and complex, but it does explain the highly unusual circumstances of the higher moments. And by explaining away the fragile state of the higher moments, it perhaps takes the heat off of a collapse based upon unsustainable speculative internals, and pushes it towards the exogenous sustainability of the credit markets' extreme generosity and munificence.

Historically they have been related, and, as such, the higher moments of the US equity market may themselves be the tell-tale of the bell-ringing ebullience of us dollar-based credit markets.

http://nihoncassandra.blogspot.com/

Kurtosis risk denotes that observations are spread in a wider fashion than the normal distribution entails. In other words, fewer observations cluster near the average and more observations populate the extremes either far above or far below the average compared to the bell curve shape of the normal distribution.
Kurtosis risk applies to any quantitative model that relies on the normal distribution for certain of its independent variables when the latter may have kurtosis much greater than the normal distribution. Kurtosis risk is commonly referred to as “fat tail” risk. The “fat tail” metaphor explicitly describes that you have more observations at the extremes than the tails of the normal distribution suggests. Thus, the tails are “fatter.”
Ignoring kurtosis risk will cause any model to understate the risk of variables with high kurtosis. For instance, Long-Term Capital Management, a hedge fund cofounded by Myron Scholes ignored kurtosis risk to its detriment. After four successful years, this hedge fund had to be bailed out by major investment banks in the late 90s because it understated the kurtosis of many financial securities underlying the funds own trading positions.
Benoît Mandelbrot, a French mathematician, extensively researched this issue. He feels that the extensive reliance on the normal distribution for much of the body of modern finance and investment theory is a serious flaw of any related models (including the Black-Scholes option model developed by Myron Scholes and Fischer Black, CAPM developed by William Sharpe). He explained his views and alternative finance theory in a book: The Misbehavior of Markets.

Normal: The Bell Curve, or a standard random distribution
Skewness: Measures of how the data "leans" as one tail is longer.
Kurtosis: Measure of the "peakiness" compared to a normal distribution.
Leptokurtic is a high peak with narrow short tails
Platykurtic is a low peak with longer “fat tails”

The obvious question is, what if this deviation from ‘normal’ in stock market returns is the result of a concerted and sustained manipulation of the markets? The answer is seen is CDT’s paragraph which I have enlarged, regarding the assumptions required to maintain the market distortion, e.g. that this liquidity will continue to NOT spike rates, NOT to significantly erode the value of the US dollar, and NOT fall afoul of the changing political environment in the US as the middle class realizes it is being screwed, and that the social model is shifting from a democratic republic to an oligarchy.
What will limit the ability of Fed to continue to Ponzi scheme and continue to inflate asset bubbles? The answer is clearly the ‘value’ of the dollar, a subfunction of the full faith, credit and fear of the US and its debt of zero maturity which is the US dollar, otherwise known as dollar hegemony. When and if the dollar breaks, bonds and then stocks will quickly follow and the Ponzi scheme will be done. There will be no ‘deflation’ in terms of monetary deflation with a stronger dollar, excepting at the point of a gun (“Political [and economic] power grows from the barrel of a gun.” Mao ZeDong) or when we knock two or three zeros off the dollar and issue ‘new dollars’ as Russia issued ‘new roubles.’
To put all this simply and in summation, as we have been saying it now for four or more years, the limiting factor on the Fed’s ponzi liquidity scheme is the value of the dollar and the existing social and political structure of the United States.

Telesatr3d--veddy intwesting!

I had hoped to have completed now (but have not) my third read of Hedge Funds and Sytemic Risk. It's a 95 page academic paper that is far beyond my cognitive grasp. But while I cannot play the concerto, I can hum the tune so to speak and will attempt to summarize some of the more salient points. (I've moved off of subprime for the moment having had my fill of reviewing SEC regs, shelf registrations and 10D filings).

http://web.mit.edu/alo/www/Papers/systemic2.pdf

The link above is for any of you with proclivities similar to mine. The point of the paper, in the broadest of strokes, is that there is a risk that the non-correlative dynamic strategies of hedge funds become correlated causing some terrible thing called phase-locking. These events founded on leverage and illiquidity. The drop in the Shanghai index or even the capricious movements of the Yen or other leveraged currencies can cause this. (Think Long Term Capital Management)

What's most disturbing is that due to to opacity of operations of hedge funds, AND the integration (or better said inextricable linkages) of these hedge funds with other institutions through leverage (banks etc--I know that HIG has investments in 2x as many hedgefunds in 2006 than they did in 2005) there is no credible way to assess the risks.

Anyway---it's a very interesting paper, and I plan to do a layperson's (maybe Archie Bunkeresque!) summary of it. But, I believe that this risks are escalating as Telestar's contribution above denotes.

More later!

U.S. Treasuries Fall as Economy Adds More Jobs Than Forecast
Bloomberg (04/06/2007 7:54 AM)
-------
Initial Jobless Claims in U.S. Rise More Than Forecast to 321,000
Bloomberg (04/05/2007 8:10 AM)
------
Goldman Sachs biggest creditor of New Century

http://tinyurl.com/yr78av

here is a surprising ranking

Quality Of Living / City Rankings

http://immobilienblasen.blogspot.com/

will be interesting to see how the stock markets will react to the nfp numbers.

the bond market has already spoken....

"10-year down 16/32 at 99 2/32; yield 4.746%"

Bill, not sure what to make of the Jobs report...

1. There seemed to be a consensus that the Street was expecting weak numbers to justify the Fed cutting intrest rates sooner.

2. and S&P 500 futures are evidently now UP 4-5 points after this report.

In your opinion, what does Wall Street want?

A weak jobs market with a better prospect for Fed cuts, or a stronger job market and a steady Fed, perhaps even with a chance of further tightening?

It will be very interesting to see how the markets and especially, the banking, lending and home builders react to these numbers on Monday.

Dear Bill, Dear Friends, Dear Community,

I would like to wish everyone a great weekend and hope you enjoy it in a pleasant space of positivity, uplift, and good company.

Bill, I join all your friends and the community in raising a glass and making three toasts on this three year anniversary of this magnificent blog of yours.

I first raise my glass, as do so many others, to you, Bill - to the profound wisdom and experience that you so generously share, to your delightful writing which is a reflection of your delightful mind & spirit, and the the great discipline ethic and generosity that has allowed you to do all that you have accomplished, and help so many all your life. We all have a bigger sparkle in our eye now that you have applied that discipline and generosity to doing the things that will heal all your physical issues, now and for a very long time to come.

And I raise my glass again now, for a second toast, to our friends and community that make it a community, that make it a space of wisdom and humour, of different thinking and unusual honesty, of passion and of humanity.

And for a third time, I raise my glass, and we all do, to all our readers and lurkers that have spent a few moments on these beautiful pages with us. May all your decisions in life be blessed, and may you find the deep happiness you so truly deserve.

Cheers!

Regarding the correlation of gold stocks and midcaps, the last correction seemed to show that all assets are negatively correlated with the Japanese Yen. They all seem to be floating on trillions of borrowed Yen/debt. When the market falls again I don't think anything will rise except the Yen. At least that is my thesis.

I'm watching the NZD/JPY ratio for a warning sign of carry trade unwind - as pointed out in the comments by someone two weeks ago (thanks!).

ALOHA !!

aa ... Yes, I will toast with you as I lift my box of Franzia and offer best wishes to Bill and all the World! Should you be toasting with a name like "aa"? The "co-dependant" in me wants to know ...

What do most of us struggling to make ends meet really care about? Mainly we care about ourselves and our families well being. What we see in our daily lives either commuting to and from work or going to the grocery store or out to
a movie is our only reality. What we see with our own eyes and hear with our own ears is really what makes up our reality. Watch TV all you want and you will always get "their version of reality" which rarely coincides with your own.

Well here is a "blog" that I think is one of the most "reality" based blogs out there on the condition of the real estate market in the USA. What they post is backed up by real life examples from people like you and I who are "reporting"
what they see going on. There is no hidden agenda ...

Here you can get real info from almost every housing sector in the USA and some in Canada.

Here is the link: http://www.thehousingbubbleblog.com/

Need to buy a foreclosure? Yahoo has come out with their new "Foreclosure Center". Here is a list of the Top Ten cities in the USA with the most foreclosures.

1 - Detroit, MI
2 - Greeley, CO
3 - Atlanta, GA
4 - Forth Worth, TX
5 - Las Vegas, NV
6 - Vallejo, CA
7 - Camden, NJ
8 - Palm Bay, FL
9 - Olympia, WA
10 - Dallas, TX

Looks like 40% of the Top Ten cities are in the South. This site also shows the banks are holding onto 569,347 foreclosures nationwide, yet only 16,337 have sold. With an average nationwide savings of 27%, it seems like even a
27% isn't moving houses!

Here is the link: http://realestate.yahoo.com/Foreclosures

ditto "aa" & kaimu. well said.

Bill, how are doing health wise? hope you are feeling better.

I had similar heath issues in the past, got rid of it by walking long distances (12-16 miles) 3 to 4 times a week. I don't catch cold or get sick any more. hope you try it when you move to Bahama.

Thanks again, and you all have a nice holidays.
jk484

goodday bill and all traders-----subject kry--long and willin to wait it out that is the permit some say week of april9th---13th??? my take lets hope sowhat about gold fields gfi?? many thanks russty

Russty1 -

I think Bill is tired of talking about KRY. You need to read the tea leaves with this company: they just hired new CEO, CFO and a COO with 30 years mining experience who speaks Spanish. They also did a share offering. Lots of activity. To me it shows that they are gearing up to develop this deposit and that is probably what the Venezuelans want to see as their concern has been that former owners did not develop the property. GRZ got their permit out of the blue (look at trading of GRZ pre-premit - no leaks). Permit could come soon but who really knows? This is a speculative play so you have to be willing to lose a chunk of your stake if something adverse happens.

Onlineaces,

I understand your puzzlement as to the continuous disconnect between the prevalent Wall Street clamor for a rate cut (weak economy is good, rate cut in the offing to reenergize Goldilock and allow for multiple expansion) and the market's upward rebound since mid-March (and even the steady climb from December to February). I shared most of it until recently. The early March downdraft episode has been largely dismissed by most experts parading on the Financial Entertainment Channel as (i) a fluke on the rosy path to higher highs ('Hey, I backed up the truck when the Dow dropped below 12,000"), (ii) the long expected correction ("now everybody goes back to the business of pushing this market higher"), (iii) the year's buy-on-the-dip opportunity (Customers, there are still some bargains in chips, financials, and, if you have the stomach for it, homebuilders have bottomed yet again!"), or (iv) the legendary climb of the Wall of Worries ("Wall Street best tradition!"). In short, I don't think that economic data really matter at this juncture. Trading is relatively thin and unidirectional. No resistance withstands more than a couple of well-timed buying pushes (see 1,410 level just before Mar. 21 Fed meeting and yesterday's 1,440 at noon sharp). I see this market closing the Feb. 27 down gap on Monday and maybe new multiyear highs before the thick of earnings season.

Re: the economy, I still believe that Wall Street begs for a rate cut, but does not really want it (at least not until late Q3). I can already picture the stunned reaction from Pisani on FET if Bernanke cuts rates. The market pops on a knee-jerk (and may close higher), but then a sell-off ensues: "how bad must the economy be for the Feds to cut rates!"

Bill et al.,

Re. MU. Just a few, quick thoughts.

(1) Eric Savitz has a good rundown of the research reaction headlines on SeekingAlpha (http://chip.seekingalpha.com/article/31667). For once, opinions on Wall Street cover the spectrum and balance out with, maybe, a tinge of negative.

(2) Citigroup's rationale for owning the stock is sound for the long run and mirror my appraisal of the company incl. LT price target (hence my intention to enter a long position if MU drops a bit further). But I am wary of anybody (esp. a industry outsider without day-to-day contact with actual customers) calling a imminent bottom in a commoditized product. From experience in energy & electricity, commodities and commodity-like markets have a propensity to lure again and again with the signs of bottom/top only to move further again. True stability often comes as a surprise and is first recognized by long-time operational professionals.

(3) Maybe I have already become an incorrigible cynic but MU's extraordinary efforts to sound positively and entirely optimistic throughout the call don't strike me as sufficient reasons to believe that a bottom is occuring right now. I like management to either deliver tangible results without bravado, offer a well-reasoned prudent plan to handle the situation if prices dip further to hell, or present a candid view of the troubles ahead with a balance of risk/reward. A few days of price stability ARE not reassuring enough a sign to put a blanket positive outlook near/medium term (itself predicated on the price recovery).

(4) Wall Street seems bent on calling the chip sector a value play this spring. Reddish flag for me. Bottom calling left and right by all houses (each with a sub-sector love affair) and semi cap equipment on the move. Not a normal seasonal pattern (until 3Q). A bit hairy if one expects some market correction and/or slow economy.

JML

Dear Kaimu,

I believe we all have some addictions, whether we are conscious of them or not. They could be addictions to certain kinds of food, drink, drugs, overwork, sex, trading, sex, trading.... ;-D heh, heh, heh ! LOL...

I do not happen to be a brother of the alcohol addiction fraternity, bless those brothers in their quest for success. However like everyone, I want more happiness, and my greatest success in that light has been when I began to shift towards an addiction to what, for lack of wishing take up too much space right here & now, I will call Life.
As you say, Kaimu, seeing reality for what it is requires ignoring the smoke & mirrors, and focusing on the real "evidence" that our own perceptions and judgments provide, rather than pre-processed ones from those with something to sell us. This being the case, wouldn't most of us all agree, that this blog is a favorite *oasis* of reality, and therefore life, during our days in an often-confusing world? Thank goodness for the internet, blog technology, and leaders like Bill, that allow us now to partake and share these refreshing and vital waters from anywhere around the world!

... and finally, "aa" is simply the initials of my middle and last names, brother. ;-D Again, a great weekend to all of us.

ALOHA !!

aa ... Perhaps God us gave addictions so we won't be so damn bored!

So much for "Shock And Awe"!!!

YOUR TAX DOLLARS AT WORK !!

READ ON:
And Iraq's big oil contracts go to ...
Companies from China, India and other Asian nations are seen getting the first contracts. But don't write off Big Oil just yet.

By Steve Hargreaves, CNNMoney.com staff writer
April 5 2007: 1:42 PM EDT

NEW YORK (CNNMoney.com) -- Despite claims by some critics that the Bush administration invaded Iraq to take control of its oil, the first contracts with major oil firms from Iraq's new government are likely to go not to U.S. companies, but rather to companies from China, India, Vietnam, and Indonesia.

While Iraqi lawmakers struggle to pass an agreement on exactly who will award the contracts and how the revenue will be shared, experts say a draft version that passed the cabinet earlier this year will likely uphold agreements previously signed by those countries under Saddam Hussein's government.

Link to the rest of this article: http://money.cnn.com/2007/04/05/news/international/iraq_oil/index.htm

One small Canadian based oil company already working in Iraq is Heritage Oil- HOC.T/HRTIF.PK. They specialize in hot spots most majors cannot risk! I bought this company last year.

Kaimu - You DO come up with some interesting companies to invest in! Do you simply buy and hold something like HOC.T? There's certainly not much liquidity. Hard to trade in and out of ! - Jock

I don't think I have the constitution to buy into a small issue without a "fail-safe" stoploss at least!

Very interesting chart regarding purchasing power.No spin, no hype, just facts.
http://simplycharts.wordpress.com/2007/03/09/dow-jones-all-time-new-highs-dont-be-fooled/

Leisa thanks for the Goldberg article, here is one that takes the counter-view:

http://www.safehaven.com/article-7311.htm

ALOHA !!

Jock ... Yes, I buy and hold, don't forget that's also a strategy too! Also, yes I agree volume is not there for "day traders", but to be quite honest with you I prefer that. Over the years the volume will come to me or a major will buy them out! I have a few of these type companies and the upside to your concern is that a large percentage of shareholders are "strong hands" and do not sell the 500 point DOW dips like the more heavy volume plays do, so there is some "insulation" on the downside while the upside is wide open!

I found these guys doing some research on Baker Hughes(BHI:NYSE)new drill system and spoke to my Father who was a retired Geophyscist(sadly passed away 9/06)with Chevron Oil about Baker. He used to read through the many periodicals he gets from Chevron and USGS, etc. and mentioned the pipelay system that Heritage Oil has. Anyway, this is the type of company that will be welcoming the BIG US/UK OIL companies to Iraq when all the dust settles.

If you go to the Heritage website and click on the "management" tab you'll see two guys listed at the very bottom(scroll down) that have some major connections in Iraq and the Middle East and even with the World Bank. Those kinds of guys are NOT your average "management". The two I refer to are Sahakian and Baban. If you know anything about Kurdistan then you know the latter has direct "family" ties to the Kurdistan rulers, while Sahakian is an inner circle World Bank consultant. Both not only have major ties but they have the oil education and resume to back it up! With guys like that onboard risk is mitigated and the company does not have that BIG OIL USA footprint, although I own Exxon and Chevron stock as well.

If I were looking at buying this company now I would not. For me the "reward" is over ... I bought in at $9 a share last year and its out of my price range for entry. I prefer to research other companies below the $10 range where the upside is better. Heritage has to go to $62 to get a 100% return. I am sot saying there is not more upside potential I am just saying the "bang" for my buck is gone! I would buy in if there were some major ocurrance like a stock split or a major project or a potential buyout.