Energy Stocks - Energy and Capital

Energy Stocks for 2009

When is bad news good news?

When the bad news is that commodity prices have gotten too low to keep producers in business.

As I have written for the last many weeks, oil has descended too far below the production cost to sustain future supply. The same is true for much of the commodity complex. With the global credit markets still tight fisted, the marginal producers of oil, gas, and metals—that is, the ones who have either new or extremely difficult and expensive projects—are unable to raise the capital needed to continue. This is crushing new supply and lending pricing power to the more established producers with cash on their balance sheets. The problem is particularly acute for miners, who find it impossible to continue operating at a loss.

That means that prices have to bottom as, indeed, it seems they have.

From a low of $35.35 on December 24, crude oil rebounded sharply to cross the $50 mark yesterday, before settling at $49.15 (NYMEX Feb 2009 Light Sweet Crude), a level not seen since December 1.

NYMEX Feb '09 Light Crude Oil. Source

That's a 39% gain. This is precisely the signal I have been waiting for, that traders may have recognized an overcorrection and started buying again.

The continued contango of the crude futures curve is certainly giving them some confidence, with contracts pricing oil at over $80 by 2011:

NYMEX Crude Oil futures curve. Source

Traders clearly do not think that oil is going anywhere but up from here. A recent Bloomberg survey of 30 analysts gave a median fourth-quarter estimate of $70 for black gold.

One driver of oil's rise is that OPEC members are apparently honoring their recently announced production cuts. Combined with geopolitical concerns like Russia's annual stick-up of Ukraine and Europe, forcing them to pay much higher natural gas prices in the cold of winter, and Iran's threat to withhold oil shipments to Israel's allies over the recent conflict in Gaza, there is plenty of tension to drive oil higher.

And that's not to mention the growing concern over peak oil—the depletion of some of the world's best and most productive oil fields.

Are you Ready for Oil's Next Rally?

Watching oil prices hover around $50 per barrel, do you really believe prices are heading anywhere but higher?

The most important mistake an investor can make is to wait. And when the world economy begins to bounce back from this recession, there are going to be some serious gains to be made in rising oil and gas stocks. In fact, nearly all of these oil and gas investments have made double-digit gains during the last three months... perhaps it's time to check them out for yourself.

Find out more about this opportunity.

Triple-Baggers Abound in Energy

My oil and gas industry favorites have been riding the rising wave of oil. Offshore drilling king Transocean (NYSE: RIG) has jumped 31% since its Christmas Eve low. Since November 21, independent refiner Valero (NYSE: VLO) is up 54%, integrated oil major ConocoPhilips (NYSE: COP) gained 24%, and natural gas giant Encana (NYSE: ECA) packed on 35%.

Coal has gained sharply too, giving producers like Arch Coal (NYSE: ACI) a 58% bump over the same period.

The rest of the commodity complex has surged along with energy. Wheat rose to a three-month high under "pent-up demand" according to Bloomberg, having gained 35% since its low on December 1. Corn and soybeans have likewise rallied.

Fertilizers are anticipating increased buying as well. Dow Jones reported yesterday that "if fertilizer purchases don't pick up within the next month, the pipeline will be unable to move enough nutrients to the fields to provide crops with maximum yield capability." No doubt farmers have held off purchasing their fertilizers until the last minute while prices have been falling, but that minute has arrived.

In response, stalwart fertilizer stocks like The Mosaic Company (NYSE: MOS) have gained 27% since the beginning of December. For those who prefer to play a basket of agricultural plays, ETFs like the PowerShares DB Agriculture Fund (NYSE: DBA) have gained 10% over the same period.

Rounding out the commodity complex, basic building materials have been gaining too. Copper is up 25% since its December 24 low, and cement giant CEMEX (NYSE: CX) has jumped an astonishing 146% since its November 21 low, to $10.55.

The breadth and strength of the commodity rally suggests to me that the sector bottomed in November-December. We may see some pullbacks from here, after such a quick and strong rally in a bear market; but, unlike the terrifying dips we saw in the past few months, when it seemed like the floor had just fallen away into darkness, those will be buying opportunities for the long haul.

My article from Christmas Eve, the day that crude bottomed out, ended with this: "The buying opportunity of a lifetime is upon us. All we have to do now is wait for the right moment to pull the trigger." I didn't know it at the time—a bottom is only a bottom in hindsight—but now I think that was the moment.

I am cautiously bullish once again on the whole commodity complex. I am not saying anybody should put all of their money back on the table at this point because bear market rallies are dangerous. But I do think the time is ripe to take partial positions, dip a toe or even a whole foot back in the water, and see how it feels. You can always "average up" from here, with as much headroom as these investments now have. For more suggestions on some of my favorite picks in commodities, please see the archives.

The next leg up in commodities has begun. We now have an opportunity to make up all that we lost in 2008, and then some, even as the rest of the market continues to fall or trade sideways. Don't miss it!

Until next time,

Chris

P.S. The way I see it, investors have two choices. They can either sit in fear on the sidelines, too afraid of this financial crisis, or they can begin securing their future wealth from these enormous buying opportunities. I know for a fact your fellow readers are taking advantage of this bear market and are on the verge of making their next move.

Closed End Bond Funds

Dear Energy and Capital Reader,

"Keith, you really have to take a look at this new investment."

Early this morning, my colleague Steve Christ drew my attention. During my morning grind, I typically become a recluse in my office and focus on the task at hand.

Today was different, and the reason is simple enough.

I've personally seen how Steve's investment ideas have kept his readers' portfolios afloat during this tumultuous market. While you are wincing as your portfolio dives into the red, Steve has been looking for those safer plays that deliver the gains.

As soon I read his thoughts on closed-end funds I instantly knew I would regret it if I didn't share this with my Energy and Capital readers. In his latest piece, Steve gives you the inside scoop on how to trade these funds.

Good investing,

Keith Kohl
Editor, Energy and Capital

——————————————-

As the recent bear market has shown us, winning in the stock market isn't always easy.

The truth is it takes patience, savvy, and a certain level of market smarts if you want to invest in the markets these days. And the cold hard reality is that if you don't have them, the big boys will drain your portfolio dry.

Unfortunately, of course, those are three areas that nearly every retail investor needs the most work on.

But what if I told you there was one type of investment that actually takes the mystery out of its real value—-one that actually has price tag on it and can be safely bought when it goes on sale.

Would you be interested?

Because if you are, I can tell you that this type of investment is definitely no market unicorn. It is called a closed-end fund, and it is an investment that trades on the exchanges every day.

Closed End Funds Explained

Now if you understand the idea behind a mutual fund, understanding a closed-end fund is easy. In essence, they are the same thing— pools of money controlled by a professional money manger.

However, in contrast, a typical mutual fund is also what's known as an open-ended fund. This means that the fund itself can issue as many shares as it needs to meet the demand on any given day. So the total number of shares in this type of fund isn't fixed at all—hence the term open ended. Shares are added as needed.

As a result, the cost of any share in one of these funds is always bought or sold at its current Net Asset Value (NAV). That's why shares of open-end funds don't trade per se on the exchanges. Instead, their price tag is always set at end of the day and it always equals the net asset value of the underlying holdings......no matter what.

That means that in a broader sense the underlying assets of an open-ended fund can never be bought at a discount. It is what is.

A closed-end fund on the other hand is totally different. Unlike an open-ended fund, closed-end funds issue a limited number of shares. That means the number of shares outstanding in them is fixed. So closed end funds trade like a stock, bought or sold minute-by-minute with a price driven by market sentiment.

That's a key difference and why I say closed end funds can be bought on sale.

China Pays the Price for Pollution

China, the planet's biggest polluter, is being forced to "go green" by its own government.

The country has instituted "Environmental Liability Insurance" to pay back the victims of its ecological recklessness.

But here's the good news for you: China has left the door wide open for everyday investors to take advantage of their green-energy boom.

The Green Chip team has composed an extensive -- and exclusive -- report on investing in this opportunity. You don't want to miss it.

Read the full report today.

Here's why.

Because the market value of a closed end fund share changes throughout the day, its price doesn't necessarily reflect the net asset value of its holdings. In fact, it rarely does.

As a result, share prices of these funds trade at either a discount or a premium to the securities underlying them. And when they trade at a discount to their NAV they have essentially gone on sale, taking some of the guess work out of buying them.

Now in "normal" conditions, the typical closed-end fund trades at anywhere from a 2 to 10 percent discount to its net asset value. However, in today's volatile environment of forced selling many these funds actually trade double-digit discounts now making them increasingly attractive investments.

Closed End Funds Meet Safe Harbor Savings Accounts

The most popular of these closed-end funds are those that invest in municipal bonds. They are the basis of what I call "Safe Harbor Savings Accounts." In them, you will find not only find a hefty yield, but very little risk.

But that's not the best part about these closed-end funds.

Better yet, the interest from "Safe Harbor Savings Accounts " is exempt from federal income tax and in many cases, state and local taxes as well. So they provide an income stream the boys in D.C. can't get their hands on unless you sell the bonds for a capital gain

That makes these ‘savings accounts" one of the easiest tax shelters on the market today—-especially now that they have hit the sales rack.

Consider, for instance, the Nuveen Insured Municipal Opportunity Fund (NIO:NYSE)

It is everything an investor could ask for these days. It pays a hefty yield and it's safe.

But even better than that is this: because it is a closed end fund it's currently on sale for an 11.77% discount. In other words, as of today, it will only cost investors, $11.17 to buy the underlying assets worth $12.66.

On top of that, this "savings account" pays a taxable equivalent yield of 8.80% for those buyers in the 28% tax bracket.

Just try to get that at a bank.

Of course, it is also a good bet that when the markets start to recover—and they will—that the discount on many closed-funds will return to "normal" levels. And when they do the share prices of these funds will rise right along with it.

That makes closed-end funds utilizing "Safe Harbor Savings Accounts" one of the best investments on the market today.

To learn more about "Safe Harbor Savings Accounts" click here.

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

P.S. While market turbulence continues to wreak havoc on investor portfolios across the globe, the Wealth Advisory is proudly sitting on a net gain of 286%. Simply follow this link to join the fast-growing Wealth Advisory community today, for as little as $79.

The Obama Energy Effect

The people have spoken.

Now, President-elect Obama will tackle one of the most unenviable jobs in history. Saddled with two ongoing wars, a record budget deficit, an economy in a worsening recession, and Peak Oil on the immediate horizon, he's got one hell of a mess to clean up.

As my regular readers know, I believe energy is going to trump all other issues, and a number of energy companies (and their investors) will capitalize in a major way. (More on that below.) And so, I've watched this presidential campaign alert to any comments about energy policy. At first they were few and far between, but once oil prices blasted into record territory this summer, the candidates' positions on energy started to clarify.

In time, I came to support Obama's platform over McCain's (although the latter was clearly more knowledgeable about the geopolitics of oil) largely because he seemed to understand the reality of peak oil. "Without a doubt, this addiction is one of the most dangerous and urgent threats this nation has ever faced," Obama said. "We know that we can't sustain a future powered by a fuel that's rapidly disappearing, not when we purchase $700 million worth of oil every single day from some of the world's most unstable and hostile nations, Middle Eastern regimes that [will] control nearly all of the world's oil by 2030...We know that we can't sustain this kind of future."

How refreshing to hear a high-profile politician tell the truth about our oil situation! He even quoted T. Boone Pickens, saying: "This is one oil emergency we can't drill our way out of."

Now that Obama has the nod, let's see what his energy platform has in store for us.

Provide Short-term Relief to American Families

This plank seems blatantly intended to win a few votes.

The first proposal would dispense $500 (individual) or $1000 (family) "emergency energy rebates" to offset rising costs, funded by windfall profits taxes on oil companies. I can't support this idea, as much as I'm sure we'd all like the help. I have always been opposed to levying windfall profits taxes on energy companies, because it stifles their initiative, and to me it's fundamentally anti-capitalist. It's also, at best, a four-month respite. By the plan's own text, it would only "offset entire increase in winter heating bills for a typical family in a cold-weather state" or "offset the entire increase in gas prices for a working family over the next four months."

The plan would also "crack down on excessive energy speculation," citing "loopholes" which "contributed to the skyrocketing price of oil on world markets." I wasn't able to find out any more details on this. If it's about raising margin requirements for oil speculators, or otherwise aimed at taking some out of the excess out of the system, it could be a good move. It has been reported that "paper barrels" traded have been as much as 22 times the number of physical barrels traded, so I think that could be curbed without harming the markets. However, there are a lot of ways such a crackdown could be done badly, too. It's hard to know without seeing the details. This area deserves our continued vigilance.

The third element of this plank would trade some light sweet crude from the SPR today for an equivalent amount of "heavier crude more suited to our long-term needs" later. This too is a mixed proposition. First, I can't imagine how anyone could argue that heavier crudes are somehow "more suited to our long-term needs." Heavier crudes are, and always will be, less desirable. Period. Second, I can't get behind the idea of take now, pay later. I think the prime objective is to keep the SPR as full as possible. That said, if price relief is really the objective, it might help, a little.

Moving on...

Eliminate Our Current Imports from the Middle East and Venezuela within 10 Years

That's a laudable goal, but what does it mean? According to the EIA, in August of this year we imported 2.4 million barrels per day (mbpd) from the Persian Gulf, and 1.3 mbpd from Venezuela, for a total of 3.7 mbpd, or 28% of our 13 mbpd of "total crude oil and products" imports for the month. So that's the target: 3.7 mbpd, or 1,392 million barrels (1.4 billion barrels) per year.

First, the plan would increase fuel economy standards by 4% each year. That makes good sense to me, considering that we're starting from an average fuel economy of a pathetic 25 mpg today, and we need to get closer to 100 mpg asap.

Second, it would put 1 million plug-in hybrid electric vehicles (PHEVs) on the road by 2015. Based on what I heard I at the PHEV conference back in July, the standard replacement rate in this country is 15 million vehicles per year, so that hardly seems ambitious. As part of the PHEV push, battery technology would receive a big boost in R&D spending. Consumers would receive a $7000 tax credit to buy these new high-efficiency vehicles, and American auto manufacturers would receive $4 billion in loans and tax credits to retool their factories. On this count, I say full speed ahead.

The Obama energy plan also includes a major push for "next-generation" and "sustainably-produced" biofuels. Undoubtedly "next-generation" refers to cellulosic ethanol, as distinguished from the corn ethanol boondoggle, and "sustainably-produced" means cellulosic ethanol and various other forms of biofuels, especially biodiesel. Now, my long-time readers know that I have been extremely skeptical of claims about the sustainability and net energy of biofuels in general, and indeed I wonder if any of them make any sense at all at the scale we're talking about. (They do, I think, make sense for small independent farmers who want to grow the fuels they need for their own tractors, as Rudolf Diesel originally intended.) I suspect that most of the Obama biofuels plan either delivers too little net energy, or isn't actually sustainable after you run it for a few years, but it sounds good and it does in fact relieve some of the burden of imported fuel...for better for worse.

In order to have a way to use all that ethanol, the plan would also mandate that all new vehicles have flex-fuel capability. I doubt that will help much—most E85 vehicles on the road today haven't seen a drop of actual E85 in their entire lives—but it doesn't cost any more, so I guess it doesn't hurt.

The "Use it or Lose It" call on energy companies to use their existing oil and gas leases before asking for permission to drill in the outer continental shelf (OCS) and on other federal lands is, I think, silly. If the existing leases were thought to have a worthwhile amount of oil and gas in them, we would have been drilling them already.

Somehow, though, if we are to eliminate a big chunk of our imported oil, we'll have to produce more domestically. That's where the new domestic unconventional oil and natural gas plays come in. Since 2006, we have identified dozens of these ventures and bagged some excellent profits on them for subscribers to our Pure Energy Trader service, but with the Obama administration planning to take aim at foreign oil imports, the country will now be desperately depending on these producers.

The Obama plan also recognizes that a limited amount of new offshore drilling may be politically expedient, and in order not to make the perfect the enemy of the good, he'd back it in exchange for Republican support for his energy agenda. I think that makes sense. At least he understands that no matter how many more wells we drill in the OCS and ANWR and the rest of America, it won't make a difference in the basic outlook for oil, and the ultimate effect will be negligible.

That's the kind of basic awareness about peak oil that absolutely must inform our energy policy. Domestic production supplies only about 5 mbpd of our 21 mbpd habit, it has been in terminal decline for decades, and nothing is ever going to reverse that trend.

Returning to the goal of eliminating or substituting something else for 28% of our current oil imports within four years, it's hard to say on the basis of this limited information whether or not it can be done. My guess is that it can be, but it's going to take a very concerted effort from the White House all the way down to each of us to make it happen.

In any case, I think it's a laudable goal and we should try to meet it. It will also present numerous investment opportunities around PHEVs, like the ones my colleague Jeff Siegel over at Green Chip Stocks has been watching.

Create Millions of New Green Jobs

Generally, there are some good ideas in the "green jobs" plank of the platform.

First, a goal of generating 10% of our national electricity supply from renewables by 2012, and 25% by 2025, would put America's goals in line with Europe's. It would give crucially needed guidance to the renewables market to sustain the necessary capital commitment for its continued growth. Incentives for solar, wind, geothermal, and efficiency technologies on every level, designed to leverage private capital, could fulfill those goals.

Simply put: Obama's win is the best thing that could possibly have happened to the renewable energy sector. Leveraged federal funding for solar, wind, and geothermal technology will drive the private sector forward to make all of those technologies more efficient, more robust, and more effective. With that kind of support, we could finally crack the storage problem for intermittent renewable energies, which would unleash a massive tide of new renewable energy projects.

As renewable energy is the obvious wave of the future, there are some excellent prospects for investing in solar and wind in the Pure Energy Trader as well.

One of the best parts of the plan includes specific goals targeted at energy efficiency. Efficiency is clearly the low-hanging fruit, and dollars spent on it pay off many times more than supply-side approaches. Obama's plan would:

Reduce electricity demand 15% from projected levels by 2020 (although I wasn't able to find any details as to whether or not that projection includes the added load from millions of PHEVs)
Weatherize one million low-income homes each year for the next decade
Make new buildings 50% more efficient over the next four years

Obama also hinted in a stump speech in Michigan that he's looking to follow the example of the Golden State:

The state of California has implemented such a successful efficiency strategy that while electricity consumption grew 60% in this country over the last three decades, it didn't grow at all in California. [...] There is no reason why America can't do the same thing. We'll set a goal of making our new buildings 50% more efficient over the next four years. We'll follow the lead of California, and change the way utilities make money, so their profits aren't tied to how much energy we use, but how much energy we save.

These are all fine ideas and probably would save the claimed $130 billion in energy bills, and then some. I support any gains in efficiency.

There are also a few ideas about which I am skeptical. First is a commitment to help build five first-generation commercial scale coal-fired power plants using carbon capture and sequestration (CCS) technology. Much has been made of CCS, and it could in fact deliver more power with less carbon, but the costs have been hard to quantify (they're possibly quite large, consuming one-quarter or more of the energy input) and the capital commitments have been hard to secure in an uncertain regulatory environment. So it's the really perfect opportunity for a federal boost to help get an industry on its feet and realize an excellent return on the investment. On the other hand, scaling CCS commercially hasn't been proven, and could turn into another government money boondoggle—it's hard to say until we do it.

But if this so-called clean coal technology really delivers, then it will be a wise investment indeed, for the US still has (relatively) abundant supplies of coal, and could benefit from a greenhouse-gas controlled way of exploiting it.

Another set of new jobs (although I don't know if they should be called "green") would be provided by building the Alaska Natural Gas Pipeline. No complaints here; with North American gas in decline since 2002 and limited hopes for LNG from abroad, we're going to need all the gas we can get soon enough.

A whole host of grid technology investments round out the package. Federal money is crucially needed to beef up and stabilize the national grid, and get it ready to receive and distribute a big new influx of renewably generated electricity. The Obama plan includes smart grid and demand management technologies, smart metering, distributed storage, power flow control, and advanced grid communications, all of which will clear the path for an explosion of renewable energy in the coming decades. Again, Green Chip Stocks has a handful of smart ways to play the smarter and beefier grid.

Reduce our Greenhouse Gas Emissions 80 Percent by 2050

A final plank in the energy platform is an economy-wide cap-and-trade program to reduce greenhouse gas emissions to 80 percent below 1990 levels by 2050.

While I support reducing greenhouse gas emissions, the details of such programs can get messy. I prefer a carbon tax approach, because it's less vulnerable to manipulation and speculation. Either way though, carbon will come with a price attached, and some of the proceeds will be invested in a cleaner energy future. That's all good.

One factor never mentioned in Obama's plan, but which I think is implicitly there, is depletion. With global peak oil likely to happen within the next two years, and global peak natural gas, coal, and nuclear power likely by 2025, it's very possible that we could meet that 2050 goal the hard way: by having nothing left to burn.

A Taste of Realism

Overall, I have to say that Obama's plan, although it has its flaws, is generally sensible and pointed in the right direction, unlike his opponent's.

Obama also has shown that he truly understands the challenge he has fought for the right to tackle. From the Michigan speech:

But the truth is none of these steps will come close to seriously reducing our energy dependence in the long term...We have to make a serious, nationwide commitment to developing new sources of energy, and we have to do it right away. Right now. We cannot wait....

Breaking our oil addiction is one of the greatest challenges our generation will ever face. It is going to take nothing less than the complete transformation of our economy. The transformation is going to be costly, and given the fiscal disaster we'll inherit from the last administration, it will likely require us to defer some other priorities. It's also a transformation that will require more than just a few government programs. Energy independence will require an all hands on deck effort from America. Efforts from scientists and entrepreneurs, from businesses, and from every American citizen. Factories will have to retool and redesign. Businesses will need to find ways to emit less carbon dioxide. All of us will need to buy more fuel-efficient cars....

All of us will need to find new ways to improve efficiency and save energy in our own homes and businesses. And none of this is going to be easy. It's not going to happen overnight. If anyone tries to tell you otherwise, they are either fooling themselves, or they're trying to fool you.

But I know we can do this. We can do this because we're Americans. We always do the improbable. We always beat great odds. We always rally together, whatever challenge stands in our way. That's what we've always done, and that's what we must do now. For the sake of our economy, our security, and the future of our planet, we must end the age of oil in our time.

Amen to that!

For the first time in many, many years, I am hopeful. Our new President not only "gets" peak oil, and sees our challenges clearly, he also seems to be clear-headed about the path forward. I think he's got the right stuff to lead our nation through what may prove to be a brutal four years, and I am once again incredibly proud to be an American.

Until next time,

Chris

P.S. What does it mean when a usually conservative International Energy Agency (IEA) issues a gloomy report? It means that recent cheap oil isn't going to last - and that $100 oil will soon be a part of our daily lives... again.

The IEA is now warning that crude oil will average about $100 between 2008 and 2015 because of an unavoidable energy crunch. The biggest cause of that crunch is "under-investment" in new and existing fields to make sure oil production can keep pace with growing demand and slowing supply, according to the IEA.

That means you should seriously be thinking about quality, beaten-down energy stocks, as early as today. I'm talking about the energy plays unfairly walloped by recent massive hedge fund redemptions, and on their way back to pre-crisis levels. We've already bagged regular double-digit gains on its domestic oil, natural gas, wind, and solar plays, but after the hedge fund deleveraging of the last several months, they're now at ridiculously cheap levels. Pick up a few today and we can virtually guarantee that they'll be triples within the next two years.

To get in on these energy profits—for as little as $275—try out the Pure Energy Trader service today.

Oil and the U.S. Dollar

Is oil going back to $50? And what does the price of oil, now in the low $60s, portend for future production?

Those have been the foremost questions in my mind lately, and I hope to give you some reasonable answers by the end of this article. But before we get to that, we're going to have to take a little excursion into a world that few individual investors ever see: that of currency markets.

As I have frequently discussed in these pages, the price of oil is intimately tied to the valuation of the U.S. dollar. The two have had a very strong inverse correlation for a long time, which makes sense if you think about it: Since most of the global oil trade is priced in dollars, if the dollar loses value, the price of oil would have to rise just to preserve the value of the black stuff. Only the price of oil moves a lot more than the value of the dollar, as this chart from the beginning of 2007 to the present shows:

Source

As we would expect, when oil fell off its mid-July peak, the dollar staged an impressive rally, appreciating 22% against the Euro and 15% against the yen.

But by rights, one would expect the dollar to be dragging the bottom after a stunning round of borrowing and dollar-printing by the Fed, in order to stave off the worst scenarios in the ongoing financial crisis. Printing money by the trillions ought to severely devalue the dollar. So what gives?

The rest of the world, that's what. As bad as the carnage on Wall Street has been, it has been far worse in the world's developing markets, which have suffered losses roughly half again as bad as ours:

Country	Stock Market Change 2008 to Oct. 22
Brazil	-59%
Russia	-72%
India	-62%
China	-62%
US	-40%

Source

Those developing economies were the darling of OECD investors in the first part of the year. Hundreds of billions of dollars from hedge funds, institutional investors and even sovereign wealth funds poured into the BRIC (Brazil Russia India China) economies, seeking outsized returns from the world's red-hot economies.

So when the subprime debacle started taking the legs out of the financial sector in mid-June, and the massive deleveraging process began, money rushed right back out of those economies, taking their stock markets down sharply.

Consider this: the world as a whole has lost roughly $29 trillion, or half of its equity market wealth, in the past year.

Thanks Obama...
For Making Me Rich!!!

Love him or hate him, there's one thing you can count on with Barack Obama in office...

He's going to make renewable energy investors insanely wealthy!

Don't believe it?

The proof is in the numbers.

Click here now.

Currency Contagion

The currency contagion then spread to emerging market currencies, affecting Australia, New Zealand, Iceland, South Africa, Poland, South Korea, Hungary, Mexico, Turkey, Indonesia, Ukraine, Belarus, Pakistan, and Argentina...some of whom have already been forced to turn to the IMF for help.

This has left the US dollar and the Japanese yen among the world's two most desirable currencies, where borrowing rates are low and liquidity is high. The "yen carry trade," which has been lively for nearly two decades, is now being unwound, and all that money that was borrowed for next to nothing from Japan and invested elsewhere in the world is now coming back home, pushing up the value of the yen to levels not seen in years. The yen hit a 13-year high against the dollar at one point last week.

This has destroyed Japanese equities, since Japan's market relies so heavily on exports, which are now much more expensive. Japan's Nikkei Index has crashed from a historical peak of 40,000 to around 7,000, a decline of 83% to a 26-year low. Consider this: If the Dow Jones Industrial Average were to mimic that move, it would see 2,450...about a quarter of its present level.

As the declining currencies of the rest of the world push up the US dollar in relative terms, the price of oil has fallen accordingly. Indeed, the prices of nearly all fuels and commodities have been slashed by one-half or more in the past three months.

And it's not over yet. First we had the banking fallout from the subprime mess in the US, then in Europe. Then we saw the global credit derivative swap market fall apart and the massive deleveraging of huge funds, which in turn led to forced liquidations, driving the prices of commodities lower still. All of the above led to the current carnage in the currency markets. Next, as prices continue to recede, causing more hedge funds to go belly-up, we'll start to see another wave of liquidations from even deeper-pocketed players, like the sovereign wealth funds of the Middle East.

Last week, trading in shares of the Central Bank of Kuwait was suspended after one of its customers defaulted on a derivative contract, for a possible loss of $750 million. One contract, and it put the whole bank in limbo. The derivative was a bet on the euro, and it was destroyed when the euro fell against the dollar. Such losses only worsen the tightness of the credit markets.

Hoping to keep its own credit markets from seizing up, Saudi Arabia announced last week that it would designate a special $2.7 billion account to fund regular loans to citizens.

As oil prices fall, it puts even the Middle Eastern giants in jeopardy. Alert to the threat, OPEC announced a 1.5 million barrel per day cut in its official production targets last Friday, yet oil continued to go lower.

What this all points to is a vicious feedback loop. As emerging economies struggle with trade deficits and reduced liquidity, borrowing costs rise, leading to more credit defaults, higher interest rates, and even tighter credit, which in turn slows down growth even more, causing businesses to shrink, and their creditworthiness to be further impaired.

This feedback loop will continue to drive down the price of oil and other commodities for the near future. This is why I have been saying for roughly the last two months that the trade in energy and commodities is simply broken, having more to do with the mechanics of global big money flows than fundamental business considerations.

Lower US and European demand for Asian goods will continue to put the hurts on Asian economies. Depressed growth expectations for China and India will feed back to the US and Europe in the form of lower equity prices, particularly in energy and commodities.

The withdrawal of European investors from emerging markets will slow them down even more. European banks lent $3.5 trillion to these economies—roughly 7 times what the US lent—and accounted for three quarters of loans to China and India, according to Stephen Jen, chief currency strategist at Morgan Stanley in London.

The global credit markets have only just barely begun to thaw from their recent freeze. Earlier this week, the New York Times reported that a close reading of recent comments by Treasury Secretary Henry Paulson and other key banking officials and senators suggests that much of the $850 bailout package won't be used to buy out bad loans at all, but to recapitalize the banks and restructure the banking system.

Tight Credit Bullish

The banks' continued unwillingness to take on new loans, even after the Treasury injection, is beginning to bite into the daily movement of goods, with far-reaching consequences. Two weeks ago, reports surfaced of grain piling up on shipping docks in the US and South America, as sellers didn't feel they could trust the banks behind the letters of credit they receive in exchange for their goods.

This week, Bloomberg reported that "as many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades," that of the Tupi find off the coast of Brazil. Petrobras CFO Almir Barbassa voiced his concerns about credit problems all along the supply chain for its drilling equipment.

Just a day earlier, the company's head of refining worried that credit-related delays would make it difficult for them to meet anticipated global oil demand, and so would put a floor under prices. At $60/barrel, he said, exploring for oil in the Canadian tar sands, and developing the ample reserves of heavy oil from Venezuela's Orinoco Basin would be uneconomical.

Legendary oil man Charles Maxwell, in a recent interview with The Money Show, noted that much of the world has fairly high breakeven cost points, which he cited as follows:

Saudi Arabia	$55
Russia	$70
Most of OPEC	$70-90
Iranians and Venezuela	$90

Therefore, at the most recent range of $62-65, oil is already at or below the breakeven cost for most of the world's remaining oil reserves!

It is not inconceivable that producers might produce at a loss for a short while. For example, some drillers will need to keep the cash flowing in order to meet regular payments on their next order of rigs, or risk losing their place in the rig delivery queue, with significant impacts on their future production schedules.

But at some point, oil producers will have to see profitability return, or they will lay down their rigs. (Numerous natural gas drilling rigs are already being idled in North America, due to the similarly depressed price of natural gas.) Eventually, the reduced supply will put the fire back under prices.

When that might happen, though, is hard to say. We must be somewhere near to a floor in oil, if we're already under the breakeven costs. If oil went back to $50, it couldn't stay there for long.

Strong Dollar Bearish

At the same time, it's hard to make a case for a sustained bull market any time soon. The dollar will continue to be favored as long as other economies continue to decline, and as long as the dollar is (relatively) strong, it will keep oil prices down.

A dour global economic outlook is also weighing against high oil prices. We are now staring down an almost-certain global recession. Over the last 150 years, recessions have typically lasted 18 months. Depending on when you start the clock, we're now somewhere between just starting and being about 1/3 into the current one.

A recession would make most stocks poor investments, and barring a spike in inflation, would favor bonds and other low-risk investments, as well as anything that offers a high yield. In recessionary times, a regular cash flow of 20% dividends from relatively safe energy stocks would be far preferable to risky growth stocks.

On balance, I think the price of oil will continue to be essentially the story of the dollar. If the European Central Bank cuts its interest rates again next month, as they signalled yesterday, it will strengthen the dollar and oil will stay low. But eventually, we will experience the blowback from trying to print out way out of this mess, which could mean hyperinflation, with oil going hyperbolic. Again, the real question is when.

Energy Stocks Are Ridiculously Cheap

I think the answer is "not yet, maybe in a year or two." In the meantime, how can you not want to lay some money on the table now, with so many high-quality companies dealing in critical, lifeblood commodities like oil trading at P/Es of under 5, in some cases with market caps less than their assets are worth, and at half (or less) their stock prices of just a few months ago? That's just crazy.

With the thought of a nearby floor in oil and ridiculously cheap energy stocks in mind, I am cautiously-very cautiously-considering taking some positions again. But at a time like this, when volatility is so great that if you bought it on the wrong day you could find yourself down 20% just two days later, it would be extremely foolish to buy full positions. (Trust me when I tell you that I am speaking from painful experience here! If I could only follow my own advice more often.)

Instead, one should look carefully at the candidates' balance sheets, seeking out the ones with low debt, high cash flow, low valuations, and high yields. The ones that make the cut should then be accumulated slowly, using a dollar-cost averaging approach, as my colleague Steve Christ recommended earlier this week. For example, buy one-twelfth of what you might like to eventually own each month for the next year. A year from now, you should be sitting on a full position with a better than average cost basis, but you accumulated it with lower risk.

I hope that helps you to play your cards wisely, and profit amid the panic.

Until next time,

Chris

P.S. We have picked out some North American energy trusts for the $20 Trillion Report that have a nice yield, rain or shine, with good reserves on their books. Since they're domestic, they should also have an excellent growth outlook, particularly as we lose access to global oil exports. Check it out and see if our recommendations are right for you.

Investing in Energy Stocks

It happened three times in one day.

The first time I was parked at a never-ending red light. Glancing off to my right, I noticed a Hummer H2 lumbering into a corner gas station. I wanted to ask the driver why he was even driving a monstrous gas guzzler, but was quickly interrupted by several blaring horns behind me once the light changed.

The second time happened only an hour later. I shrugged off both sightings, dismissing them to chance.

Later on, I was filling up at a nearby station when a third Hummer pulled up to the pump behind me.

This time I couldn't resist.

I've never been able to nail down the miles per gallon one of those behemoths get. From what I've read, the number ranged from 7 to 16 mpg. Neither sound too comforting. While capping my own gas tank, I politely asked the gentlemen whether driving around in the H2 was hurting his pockets.

"Are you kidding? Cheap gas is back for good, so why not?" He replied.

I didn't have the heart to tell the driver he was in for a rude awakening.

Energy Stocks Still Strong in the Long Term

He did have a small point, however. Gas is certainly cheaper. And I couldn't think of a better time to fill up a hulking gas guzzler like the H2 than now.

Last week, the Energy Information Administration reported the average retail price for regular gasoline was $2.91 per gallon. That's a 24% drop in a little over a month.

In the short term, it appears that oil doesn't have much to hold on to. With the markets worried about lower fuel consumption due to a global recession, our eyes were focused on how OPEC would defend lower oil prices. The cartel's lackluster solution was to trim production by 1.5 million barrels per day. It took them an hour and a half to decide it.

The production cut was the result of a compromise. OPEC price hawks like Venezuela and Iran were calling for a cut of more than two million barrels per day. Other members were calling for a smaller cut of 750,000 barrels per day. The move failed to rally oil prices and the OPEC price basket fell to its lowest in 19 months.

I wouldn't run out to your local SUV dealer just yet.

Think about it for a second...

The hard truth for people to understand is that the world has been struggling to produce oil. Quite frankly, I don't see things improving. Sure, demand will go down during a recession. Unfortunately, that won't solve the problem.

Like my H2 friend, many people have no idea what we're in for. They see cheap gasoliine and think things are back to normal.

If there's one thing I've been trying to reiterate during this volatile market, it's there are still dozens of opportunities out there for investors. The fact that energy prices have steeply fallen since July, I can't think of a better time to invest in energy.

Granted, it's not easy to find those gems.

As one of my readers asked recently, "How do I know I'm putting my money in the right stock?" Her major concern, however, was where to start.

3 Things to Know Before Investing in Energy Stocks

So what do I look for first?

I'll admit that searching for the right stock can be a daunting task, especially with the market turmoil around us.

Once I pinpoint a certain stock, there are three simple things I need to know before I even consider spending a single dollar. If the company meets the criteria, I'll continue my research and ultimately decide whether they're worth their salt.

Property: Does your prospective company have a strong list of assets? In a market like this, I prefer to stick with companies that are actively drilling on their property and have a steady production they can bring to market.
Debt: Having debt isn't a bad thing. Having too much debt, however, is a problem. Too much debt could drain a company of its cash and is a good indicator to stay away.
Long Term Bull: There is one question I ask myself before I think of buying a single share of any stock. It also happens to be the exact same question I posed to my readers last week: Can you see yourself owning this company ten years from now? It's that simple. I haven't met a single person who believes oil prices won't rise over the next ten years. Even though I may not hold a particular stock for that long, it gives me an idea of how confident I am in them

So, there you have it.

The bottom line is that you can either sit on the sidelines in fear, or grab those deals with both hands. I can tell you without a doubt in my mind that the latter group will be the ones smiling when all is said and done.

Until next time,

Keith Kohl

Energy and Capital

P.S. Even though there's a host of opportunities for investors right now, it's up to you to take advantage of this bear market. The $20 Trillion Report is poised to strike while the iron is white hot. It wouldn't be fair if I didn't offer you the same chance to profit along with your fellow readers. If you're interested, you can learn more about it here.

Redemption Song

Well, it's been another breathtaking, bone-shuddering week on Wall Street, and calls and emails have been pouring in from friends and relatives seeking advice on how to react to the worst market since the Great Depression.

I have found myself humming the same song for the last month straight: the Duke Ellington classic, "Do Nothing Till You Hear From Me."

In recent weeks, I've already said "When in doubt, sit it out," and "stay out of the water and wait until there are fewer sharks around," and "This is no time to be a hero. It's a war zone out there, and the better part of valor is to keep your head down and your powder dry, and live to fight another day."

This week, the song remains the same.

Lest you think I'm being disingenuous, I want to make one thing clear. Yes, as little as a month ago I also said that this is a good time to be accumulating long positions in commodities and energy, because they're getting downright cheap. And over the last month, some of my favorite names have crashed 30-60%, to where they now have P/E ratios in the 5 to 10 range—outstanding bargains, historically speaking.

If you are a disciplined long-term investor, buying small amounts of your favorites on say, a monthly basis, you are now averaging down your costs considerably, and I have no doubt that in a few years you're going to be pretty pleased with those positions.

But I have also advised that the markets haven't been working normally for months now.

At the beginning of July, I wrote:

On June 18, the credit strategist for the Royal Bank of Scotland said, "A very nasty period is soon to be upon us - be prepared," and warned that the S&P 500 could tank to 1050 by September-a 28% drop since the beginning of the year. That means that all of the gains made by the index's component companies since the end of 2003 would be wiped out.

Well, 1050 was finally breached in Monday's selloff-six days after the end of September. And indeed, equity valuations have been knocked back to 2003 or worse.

As I have explained ad nauseum in these pages, the counter-intuitive selloffs in energy and commodities have had little to do with the fundamentals of the stocks or their businesses, and everything to do with the mechanics of big money deleveraging and exiting the market, and with the "shadow banking system" that is the global credit market simply seizing up.

Simply chart together a few stocks in oil drilling, steel, coal, large consumer goods, and you'll see almost identical trading patterns for the last several months. That's a big clue right there, with such dissimilar businesses.

Between redemptions by hedge fund investors pulling their money out, and margin calls resulting from unwinding enormously leveraged losing bets, the selling has continued to be indiscriminate and widespread and brutally mechanical, even in the traditional safe haven sectors, gold, and other precious metals. In fact silver and platinum have reached prices at which it's no longer economical to mine!

In short, the selloff has been all about things that mere mortals do not understand, as evidenced by the decision of the mortals in Congress to push through an ~~$700~~ $850 billion bailout plan on Friday night that did nothing to assuage the markets, failed to unfreeze the global credit system, and indeed led to the massive 8% plunge in the averages on the very next trading day...only to be followed by another 500-point tumble on Tuesday this week.

There was another dead giveaway in the reaction to the bailout bill that should give us pause: Although the bill contained an 8-year extension to the expiring 30% Investment Tax Credit (ITC) for solar installations, which was widely anticipated and which should have inspired a rally in the whole sector, solar shares sold sharply with the rest of the market, ending the day down as much as 8% after rising as much as 10% earlier in the day. Such counterintuitive action and volatility tells us that the markets are dancing to a different tune.

I think I know the name of that tune. As I watched the carnage, I had a vision of the CEOs of WaMu and Indymac and Lehman and Merrill skanking down Wall Street together with a thousand hedge fun managers, singing an updated version of Bob Marley's "Redemption Song":

Old pirates, yes they robbed us
Shareholders were out of luck
Then the big banks they bought us
For pennies on the buck
But our balance sheets were made strong
By the hand of the Treasury
We dumped debt onto future generations
With the help of the FDIC...
Won't you help to buy
These obligations?
Cause all we seem to have
Is redemption songs
Redemption songs...

Next Up: Severe Recession

One of the observers I have been watching closely is NYU professor and economist Nouriel Roubini, who has correctly forecasted the meltdown we are now witnessing, and who correctly predicted that the $700 billion bailout plan would not restore confidence in the credit markets. He has advocated a much more aggressive and coordinated strategy, including recapitalizing the strong banks and killing off the weak ones, guaranteeing all bank deposits, and cutting interest rates.

Now the Fed and the world's bankers appear to be coming around to Roubini's strategy, but he believes that they have done too little, too late, and a severe recession is already a foregone conclusion. In today's interview on Tech Ticker, he laid out his best case scenario as follows:

"At this point, the recession train has left the station. The financial and banking crisis has left the station. We're going to have a severe recession. We're going to have a severe financial crisis. What we can avoid is a systemic collapse of the financial system. And the corporate sector is going to lead us to something close to the Great Depression or to what happened to Japan, with a stagnation of economic growth for a decade. So at this point, it's going to be ugly regardless, but at this point we can avoid a total meltdown of the system and a multi-year collapse of the global economy."

Worse, he projects that instead of this being a typical 18-month recession, it will probably be more like a two-year recession. If that's the best case scenario, then there is very little reason to want to be in equities right now, period.

I also constantly keep in mind that the absolute global peak of oil production is now probably only a year or two off. If we are struggling to come out of a two-year recession just when oil spikes up and supplies start to become short, things could really get ugly for the American economy.

Accordingly, I have changed my tune somewhat, and adopted a strictly defensive stance.

This has become a horrible negative feedback loop and I continue to believe that the best place to be is in cash. I don't advocate panic selling, but I do try to point out that an $8 commission is a very small price to pay to protect your capital. This is an excellent time to go to the sidelines, take a breather, and reevaluate, then come back in a month or five, when all this mess has been sorted out a little more.

The only liquid investments I can advocate now are physical (not paper) gold and silver, and the occasional short-term trade in a short side ETF like QID, FXP, or SKF.

There is a very real possibility that after we get through the first part of this crisis, and everybody is in cash, that the value of the dollar could collapse.

In fact, I believe that best investment for the future right now is a piece of productive land where one can grow some food. Real things hold their value in times like these, and it's wise to hedge against the possibility of breakdowns in the food distribution networks due to the ongoing crisis.

It's hard to believe, but those who have analyzed the history of bear markets say that the worst is still yet to come.

Take heed: we're probably only halfway to the bottom in this selloff, and the second half will sell off even more sharply. Wholesale panic remains a real possibility.

As I wrote last week, "the safe move is not to play at all," and the best advice I can give right now is to "keep yer fool head down."

Do nothing till you hear from me.

Until next time,

Chris

Surviving the Financial Tsunami

If you have any money in the market, you probably have just one question on your mind right now: "What should I do?"

Monday was the worst day in the markets since the Sept. 11 attacks of 2001, after the news about the liquidation of Lehman Brothers and the emergency buyout of Merrill Lynch by Bank of America over the weekend.

For bankers, Sundays just aren't what they used to be.

To complete the trifecta of terror, AIG, the largest insurance company in the country, announced that it was on the ropes and desperately trying to raise enough cash to stay afloat. They needed a fix immediately, and by Tuesday night they had it: another $85 billion bailout by the Fed.

We've been anticipating this meltdown for most of the year, as regular readers of this column know. The bodies that were buried under a thick mud of cleverly sliced and diced loan-backed securities were bound to float up to the surface in the next 100-year flood.

And that's what we have here. Some have called it a financial tsunami, others a hurricane. Alan Greenspan called the global financial crisis it a "once-in-a-century type of event."

Choose your metaphor, but the result is the same: widespread devastation.

Even gold and commodities, the safe havens that investors typically turn to in times like these, are being sold off.

The markets just aren't working the way one would expect them to. For example...

Oil and Gasoline

The recent hurricanes have reduced Gulf oil supply by 20 million barrels, and a quarter of the U.S. refinery capacity is offline. Gasoline stockpiles are at their lowest levels since 2000, and headed for record lows.

Normally that would mean higher prices for oil and gasoline.

But these are not normal times.

Instead, as the financial markets melted down, oil had its steepest two-day slide since 2004. Oil has been in freefall since its July peak at $147, touching $91 on Tuesday and closing at $93, a level it has not seen since February. And all the important technical indicators are pointing to further selling.

Gasoline has only experienced a slight uptick from around $3.70 to $3.80 a gallon since the hurricanes began, after experiencing its own freefall from the July peak around $4.11.

This tells me that the selling has been indiscriminate and probably overdone, because I estimate that the trendline price would be closer to $120 a barrel now. On the other hand, as the financial meltdown eventually translates into a global slowdown, even the fundamentals may be impacted as demand cools. It may be time to rethink our outlook for oil demand.

Gold

Gold plunged from a high of $981 on July 15 to $782 on Tuesday, after going as low as $741 on 9/11.

The action in silver is basically the same.

Interestingly, the chart for gold is nearly identical to that for oil.

What this tells us is that broader market conditions, like the valuation of the dollar, lowered global growth expectations, and the ebb and flow of big money from hedge funds and institutions, are dictating prices much more than the fundamentals.

Sea Sickness and Storm Surges

Still reeling from a 4% loss on Monday, the major averages see-sawed for most of Tuesday before charging up to a more than 1% gain on the day. This was even as AIG went down the Street hat-in-hand, and Goldman Sachs reported a 70% slump in profits for the third quarter.

Why?

Because this time, the Fed opted to defend the dollar, rather than cutting rates. I think that was the right call, since taking the other path courts hyperinflation. What we really have here is a liquidity of credit problem, which can't really be resolved by lower rates, and that problem seems to be getting addressed. The Fed pumped $120 billion into US banks between September 15 and 16, expanded its lending to investment banks for the first time, and agreed to accept more types of assets as collateral.

Those moves have assuaged the markets somewhat for now, but we are still in an extremely precarious position.

It will likely take months to unwind the estimated $700 billion in trades in which that Lehman was involved. But before all that is done, we will have not only a continuing fallout in the financial sector, but a financial storm surge (if you will) that swamps related parties, like insurance companies.

The sectors of the economy that depend heavily on getting credit will be whacked next, like automakers and construction companies. And it certainly isn't going to help the mortgage market to recover.

Plus there is a whole raft of banks in danger of going under. Addressing that issue will necessitate recapitalizing the FDIC, because it only has $50 billion in its accounts—not enough to cover a new run on the banks.

For now, there are still two major investment banks left standing—Goldman Sachs and Morgan Stanley—but experts like Nouriel Roubini, an economics professor at New York University, expect them to be gone in a matter of months, as they succumb to the same flawed business model that did in Bear Stearns and Lehman.

We could be looking at a major reorganization of the banking industry, pairing investment banks with commercial banks that are more tightly regulated and which have actual deposits. It could take a good long while to put this mess straight and win the confidence of investors again.

Meanwhile, the US economy remains, as Roubini put it, reliant "on the kindness of strangers" to keep buying Treasuries and keep our leaky boat afloat. Virtually all of our half-trillion annual deficit is borrowed from foreign banks, principally in Japan and China.

Including the AIG loan, the Fed just added $205 billion more to the country's debt load in the last two days. And it's not over yet. Not even hardly.

When In Doubt, Sit It Out

The stock market hasn't been this messed up since the Great Depression. Look around: Every sector, including the traditional safe haven of gold and commodities, is being sold off as hedge funds and banks scramble to raise cash.

There is nowhere to run, and nowhere to hide. The selling is indiscriminate.

In times like these, cash is king. Cash and bonds are the only true safe havens right now, and until all the scared money has scuttled off to hide under a rock, your investments are at risk.

If you've been holding onto your positions in energy and commodities, as we have recommended, rest assured that we feel your pain, and have had our fair share as well.

We still believe that a recovery in the sectors is somewhere up ahead, but with the bottom falling out of the markets the way it has been, it's getting increasingly difficult to say when. This could go on a whole lot longer than anybody would like.

So if you want to protect your capital and take it off the table, we can't blame you. I have lightened up on my holdings considerably until the dust settles a little. That's what the smart money seems to be doing. It certainly isn't rushing in to scoop up bargains.

As Falstaff said after feigning death in King Henry the Fourth, Part One, "The better part of valour is discretion; in the which better part, I have saved my life."

This is no time to be a hero. It's a war zone out there, and the better part of valor is to keep your head down and your powder dry, and live to fight another day.

Until next time,

Chris

Of Bailouts, Hedge Funds and Energy

Hooray! Fannie and Freddie have been rescued! With the US Treasury as a "backstop," the mortgage crisis is over, and it's safe to jump back into tech and finance, right?

Not so fast...

The bailout won't help the homeowners at risk of foreclosure, and the stimulus it might give to the mortgage market will be limited to those with the very best credit.

Nor does the bailout remove the risk of the perhaps $500 billion more in writeoff candidates that still remain on the books of the banks.

In fact all it did was preserve for a little while longer the faith of international bankers in the US financial system.

It assuaged the global credit markets sufficiently to keep them from freezing up entirely—a scenario no one wanted to see. It assured the foreign bankers who are holding and buying our federal debt that their investments weren't going to evaporate. It meant that our lender of first resort, the Chinese, might continue to buy Treasury bonds, and keep this charade going a little longer.

At least, until just after the election.

So while we awoke with a hangover on Monday morning, realizing that what we really did the night before was increase the federal debt exposure by half...and while we watched huge financial institutions like Washington Mutual and Lehman brothers going down in flames, just like Bear Stearns did...and then when we got the news on Tuesday from the Congressional Budget Office (CBO) that this year's budget deficit will jump by (ahem) 153% to $407 billion...

...In other words, while the news about the health of the US financial system could not possibly have been worse, what happened?

The dollar rallied.

It's the kind of action that could drive any rational person insane. That is, until you realize that it was really a global exhalation by thousands of bankers who had been holding their breaths, and could now wipe their brows and live to fight another day.

A Giant Sucking Sound

Naturally, with the rallying of the dollar, energy and commodities were sold off. In a huge way.

In the first two trading days of this week, after the emergency measure was announced (again, on a Sunday) by Treasury Secretary Henry Paulson, some of my favorite positions got slaughtered: Arch Coal (NYSE: ACI) down 19%; Southwestern Energy (NYSE: SWN) down 19%; BHP Billiton (NYSE: BHP) down 8%.

That's just from the close on Friday to the close yesterday (Tuesday). The carnage was widespread, covering the whole sectors and indeed, pretty much the entire market.

Such insane moves are never about the fundamentals of the businesses; they're always about market sentiment.

In fact this one was about more than just the health of the US financial system. It was also about the role of hedge funds in the markets. I would go so far as to call it a referendum.

Most hedge funds were deeply invested in energy and commodities in the first half of the year, because that's the only part of the market that was making any money while oil made an historic run. Bloomberg estimates that assets linked to commodity indexes exploded 20-fold from $13 billion at the end of 2003 to $260 billion by March of this year.

The massive selloff that began in July—which has now whacked roughly 25% off the entire energy and commodity complex— absolutely killed many of the funds, as they had to unwind highly leveraged investments at the worst possible time.

The amount of leverage can't be known, since private funds aren't required to disclose it. We do know that via a process called Joint Bank Office (JBO), hedge funds can act as though they are prime brokers, and leverage as much as 200-to-1. Under such tension, even a slight selloff in the core assets of a fund can have a massive effect on the markets.

So that giant sucking sound you hear is coming from hundreds of billions of dollars quickly disappearing from the market, as fund managers try to exit their positions. Some are just trying to limit their risk and preserve their remaining capital, but others are forced into selling to pay for redemptions.

Some of the top names in hedge funds have suffered losses as high as 60% in the last two months, while others, like Osprarie last week, are simply closing their doors.

After about a decade of massive excesses in hedge fund investing, which made huge piles of cash for some, it looks as though the game may be up now.

Ah well. What goes up must come down.

This means that for a short while, at least, there will be these periods of sharp selling in perfectly good energy and commodity stocks. This is another phase of the bottoming out in those sectors, as the last of the big speculative money is squeezed out.

The action has also made it clear that I have underestimated the effect of speculative money on oil, and on energy and commodities in general. Perhaps it had less to do with the fundamentals than I thought.

A new report released today by Masters Capital Management cites "clear evidence" that the flow of large institutional money became "the primary source of the dramatic and damaging volatility seen in oil prices" this year. Masters estimates that $60 billion flowed into the oil futures markets in the first five months of the year as oil soared from $95 to $145, but that $39 billion has since flowed back out, taking oil down to $103 today.

A report expected later this week by the Commodities Futures Trading Commission may confirm the Masters conclusion, but in any case, we expect further regulation of the oil futures market going forward, and a consequent reduction in volatility.

The Python Plan

Ultimately, what must happen now is a massive deleveraging of the hedge funds, and a gradual deflation of the dollar. But it could be painful.

I think we're only about halfway through the total losses stemming from the mortgage industry. And the rest of the economy looks absolutely abysmal. In round numbers, here's what I'm seeing.

On the asset side: Our official GDP is about $12 trillion, but about $4 trillion of that is just accounting tricks like "imputations" and "hedonics." (I won't get into all that nonsense now, but you can learn more about it from Chapter 16 of Chris Martenson's excellent Crash Course, which I highly recommend to your attention.) So our real GDP is closer to $8 trillion.

On the debit side, the numbers really beggar belief.

The official US national debt now stands at nearly $10 trillion.

Total federal debt obligations (including Social Security and other unfunded mandates) are closer to $53 - $85 trillion, depending on whose numbers you use.

This year's expected budget deficit of $407 billion includes $168 billion for the economic stimulus checks. Most of the remaining $240 billion went to pay for the wars, for tax cuts, and for imported oil.

Add to that the $200 billion that we may expect to take on in Fannie and Freddie debt, and we've got over a half-trillion dollar hole in our pocket, every year. Divide a $600 billion deficit by an $8 trillion GDP, and we're losing roughly 8% per year—enough to make anyone shudder. (Even those numbers are probably on the optimistic side.)

And all of that money is either being printed or borrowed from abroad. Either way, it means our economy is getting progressively sicker.

Consider this: Total credit market debt now stands at a record 342% of the GDP...a level far above the last all-time peak in 1929.

On a balance sheet, we look like a banana republic.

I don't know how else to put it. Our economy is teetering on the edge of the abyss. And the path it's on is completely and utterly insane and unsustainable.

Peter Orszag, director of the CBO, put it plainly: "The nation is on an unsustainable fiscal course."

The only reason we're still breathing at all is that our creditors, primarily Japan, China and countries of the Middle East, are holding so much of our debt, they really can't afford to let us fail too hard, or too fast.

What the Treasury is to Fannie and Freddie, Asia and the Middle East are to the US.

But that game can't go on for much longer, and we're already seeing the signs that they are losing their appetite for more US debt.

Instead of letting us crawl still further out on that limb, I think we're seeing a change in tactics. Credit will contract, which will drive up interest rates, and our creditors will slowly shed their dollars, preciptating deflation and shrinking the economy. Instead of T-bills, they will buy large chunks of our assets on the cheap: an airline here, a big stake in a bank there; a vault full of gold today, and a port tomorrow.

Call it the Python Plan: We will be slowly strangled and then eaten.

But they have to keep the markets from seizing up entirely in order to do that, and the bankers of the world will work together to keep the money flowing. Hence, this week's bailout, which was clearly necessary. Hence the seizure of 11 banks this year by the FDIC, with more undoubtedly to come. And hence the liquidations of firms like Bear Stearns, which isn't over yet either.

Get Ready for the Next Bounce in Energy Stocks

So when do we see the end of this latest bounce of confidence?

I think it might have been today. Monday morning's exuberance in the major averages quickly faded away, and all ended yesterday with losses. Then we had a follow through with a sharp rally in energy and commodity shares today.

Likewise, I expect the dollar rally to turn around here. The dollar is now up about two standard deviations over the past 60 trading days, a condition that has only occurred six times this decade, and should be ripe for another plunge.

So what does it all mean to you?

I know I'm beginning to sound like a broken record, but this is where you want to be adding to your positions in energy and commodities. (If you need some suggestions, see my past articles listed below.) And if you're holding underwater positions, this is your chance to average down your cost by buying a little more.

But I will certainly understand if you want to stay out of the water and wait until there are fewer sharks around.

Until next time,

Chris

P.S. To really capitalize on the next rally in energy and commodities, you need to know about the hottest US energy plays we can find, available exclusively to subscribers of The $20 Trillion Report

Rumors of the Demise of the Commodity Boom

The first day back to work and back to school after the Labor Day weekend was a wicked one for commodity and energy investors.

Gold slid 3%, or $25, to $810.50 and ounce, a level it has not seen since its most recent low on August 18 at the end of the last huge commodity/gold/energy selloff.

Crude oil fell intraday to $105.46, a five-month low, and closed at $109.71, the first violation of the $110 floor since the huge run began at the beginning of the year.

Gasoline futures fell 9% to $2.73 a gallon.

One of my favorite agricultural commodity ETFs, the PowerShares DB Agricultural Fund (AMEX: DBA) gapped down 4.7% at the open, recovering over the day to close down 2%.

The dollar rose to a seven-month high against the euro, and an 11-month high against a basket of six major currencies.

Energy stocks were universally thrashed, some suffering double-digit losses at the open...including lots of great stocks in great businesses with ridiculously low P/Es.

Even corn and soybean futures fell about 5%.

On the whole, I took a 5% haircut on the day, and I know I wasn't alone.

It was enough to make me wonder for a moment if my whole thesis—about going long gold, commodities, and energy and shorting the dollar, the major markets and the financials—could somehow be wrong.

All in all, August and the first trading day of September have beaten the commodity and gold complex like a rented mule.

Conventional wisdom on the Street was nearly universal: Commodities and gold have simply fallen out of fashion, the dollar's going higher and oil is going lower.

A Bloomberg story explained: "'The sharp drop in crude prices is the driving factor behind the weakness in grains markets today,' Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, said by e-mail. ‘The fear premium that had been built into crude prices was hastily wiped away.'"

Yeah, yeah, that's the ticket! Lower crude prices should instantly translate into cheap grains!

Spare me.

Captain Contrarian Weighs In

To check my sanity, I did what I often do when I want a good read on the day's action, and what the markets were thinking: I called up a buddy who manages money for a large financial institution. I have to protect his anonymity, so I'll call him Captain Contrarian, because he's generally a contrarian.

"I'm sticking to my guns," he said, then proceeded to lay out his case once again. Buy oil, short the financials, buy commodities, buy gold.

I found myself in complete agreement with the Captain. The herd turned tail and sold off the whole gold/energy/commodity complex, and overdid it, as usual.

For example, there is no sensible way to explain how a weaker-than-expected Gustav would justify whacking corn by 5% and stalwart coal producers like Arch Coal (NYSE: ACI) by 14% at the market open.

It's not like corn is suddenly going to be in less demand, or that we're going to see some crazy corn surplus after a year of intensely challenging weather.

Nor is China suddenly grinding to a halt, or cutting its demand for coal. Quite to the contrary, in fact, as I have argued at length in these pages.

In many ways, Tuesday was just like the action in the first part of August, and my take is exactly as it was then. (See "Is the Commodity Boom Over? Playing the Market in Upside-Down World.")

It's just another crazy episode of the herd suddenly changing direction, selling off whole sectors. When Gustav failed to deliver a Katrina-like blow, traders sold oil, which boosted the dollar because oil and the dollar generally trade inversely, which drove investors toward unloved equities and away from the former safe haven of gold and commodities in general.

But the prevailing idea behind this turnaround is that demand destruction here in the US is so significant, that it will affect the whole world, including China. Reduced expectations for demand of energy and commodities through the rest of the year sent speculators scrambling for the exits.

And to show you that I'm an honest analyst—or at least I try to be—the action has had me re-thinking my view on the role of speculators in oil, and energy futures in general. There might be more to that aspect than I had thought.

But is my overall thesis wrong?

Not on your life.

The inflation threat has hardly been cured. And if China's annual growth rate should drop from a lofty 11% to 9% or 10%, that will only cool the commodity trade from white-hot to bright red.

To paraphrase Mark Twain, rumors of the demise of the commodity boom have been greatly exaggerated.

When the World is Upside Down, Buy!

On a day like Tuesday, when the whole crowd is selling off everything you believe in recklessly and mercilessly, gold is down and all three of the major averages end the day in negative territory, you can really start to feel like there's nowhere to run, and nowhere to hide.

Clearly, we're back in Upside-Down World.

So I'll repeat what I said last time we were here:

Watch the important support levels closely and choose your buy points carefully. Be patient. Accumulate your favorite long positions-and a few shorts for good measure, like SKF and FXP-gradually. And then hold them and hold on.

I say that's still the right call, and I'm sticking by it. Absolutely nothing has changed in the fundamentals for energy and commodities, and I believe the Street is severely overestimating the demand destruction factor.

When nobody wants to be in the sector, that's when you want to buy it.

I mean, seriously: When a stock like ACI is down 14% in a day, that's a golden buying opportunity. And gold, oil and natural gas at current levels are positively cheap.

So seize this opportunity accumulate a little more, and just sit tight. In another day or a week or three, you'll be glad you did. Hold those positions for a year or two, as any good long-term investor would, and I guarantee you will make some good money on them.

In fact, you and other investors in energy and commodities might well be the only ones with gains to show for the period.

Until next time,

Chris

P.S. We have picked out some real best-of-breed and off-the-radar winners in energy, which we make available to subscribers of the $20 Trillion Report. If you want the inside scoop on them, sign up here.

Is the Commodity Boom Over?

The last few weeks have really had me scratching my head and wondering, "What the hell is going on here?" The markets have been behaving exactly the opposite of what any rational read of the facts might suggest.

As we have predicted repeatedly in these pages, the fallout from the mortgage crisis has continued for the top names in finance: USB, Merrill, JPMorgan, AIG, Goldman, Wachovia, Morgan Stanley, HSBC, Citigroup, and on and on. Not just writedowns, but buying back their crap securities, raising more capital, and generally fighting for their survival. Meanwhile, the losses of Fannie and Freddie have been socialized, with a massive taxpayer-funded bailout.

And how did the markets react to this terrible news? The financials boomed, rising about 15% since the bottom on July 15, with some players like Merrill Lynch rising 32% in the first five trading days of the rebound.

With a hallucination of confidence in the health of the US financial system restored, the dollar charged back up, while European and Asian markets took their hits.

The action in oil has been likewise counter-intuitive. The loss of approximately 1.5 million barrels a day of oil supply from the world market due to the conflict in Georgia caused a mild one-day uptick in its steady decline from a peak of $147 to $113.

In a normal world, such a cut in supply would be enough to pack another $20 or more onto the price of oil. If the Saudis were to suddenly cut 1.5 mbpd of production, you can bet it would have a huge impact on the price. But this isn't a normal world.

Upside-Down World

This is Upside-Down world, where everything does the opposite of what you expect. For a short while.

Is the renewable energy business so much worse this year than it was last year, such that the best names deserve to have their stocks whacked by 40%? No, not at all; in fact the business has grown substantially since last year.

Is the world suddenly losing its appetite for oil and natural gas? No, demand is still higher than ever before. Although the rate of growth is slowing somewhat due to record prices, demand in Asia and the Middle East is still red-hot and will continue to outweigh declining demand in the US and Europe.

Is demand for base metals, fertilizer, and food so much lower now than it was in the first half of this year? No, we still want more and more of everything.

So what's the deal?

The recovery of the dollar, however illusory, is the main factor taking down the price of gold, oil and other commodities. As I have said here more than once, the daily news about oil inventories, demand levels, even pipeline attacks isn't nearly as important as the valuation of the dollar. (And no, it's still not because of the evil speculators.) Consider this chart:

As the dollar (the lower red line) has recovered, oil (in blue) and agricultural commodities (DBA, in green) have fallen off. They are the mirror images of each other.

The reason is simply that when traders have lost confidence in the stock market, they fly to the safety of commodities, energy and gold. When confidence returns, they fly right back out and look for bargains in the carnage they just left behind.

Stay the Course

In short, what we have here is a trader's market. The fundamentals have been thrown out the window, and now it's all about herd mentality.

That makes it a particularly dangerous market for longs like you and me. If you're not a very active trader who's on top of every move, you're going to take some hits. And if you're not such a trader, you're going to get killed if you try to play it.

Your best strategy is to simply stay the course. I have no doubt that my long term theses are still solid. Energy, commodities—particularly agricultural commodities—and gold are still the right place to be for long investors, and I don't see that changing for several years...not until global peak oil is clearly behind us, and the consequent global recession sets in.

But you have to have a strong stomach in a market that has simply lost its mind. When chaos is happening all around you, there's nothing harder than standing your ground.

And times like these, when the trendlines have returned to their 200 dma's and the whole sector that you know is right for the long term has been sold off, are ripe for bargain hunting.

Just don't try to be a hero. Watch the important support levels closely and choose your buy points carefully. Be patient. Accumulate your favorite long positions-and a few shorts for good measure, like SKF and FXP-gradually. And then hold them and hold on.

The commodity boom is far from over, and the panic over energy supply and a fundamentally unsound US economy will always return after these bear market rallies. This Tuesday's selloff destroyed half the gains or more in the financial sector over the last three weeks. And today, the bears are out in force, driving the major indexes lower while the gold/commodities/energy complex charges back up. (See my past articles for stock picks in those sectors.)

Likewise, the correction in oil will overshoot, as it always does, and then it will overcorrect to the upside again. I thought the new floor was around $120, but it could be $110, or it might even dip lower for a short while. But it will be back. I expect to see $150 again before the year is out.

I also expect this wicked volatility to increase as we make our way into the heart of this beast. Vladimir Putin isn't done in his campaign to renationalize the resources of the former Soviet Union, oil and gas supply is still as tight as a drum, and there are still far too many mouths to feed. So take your Pepto-Bismol and hold on tight.

When the markets finally come to their senses again, your clearheadedness will be rewarded.

Until next time,

Chris

Domestic Oil and Gas Companies

Editor's Note:

With gasoline prices now at $4 per gallon, two new energy proposals are attracting a lot of attention on the airwaves - the Pickens Plan and Newt Gingrich's "Drill Here. Drill Now. Pay Less." plan. But did you know that we've had an energy plan on the books for months now? It was developed by Chris Nelder and Brian Hicks.

They released their plan to the public last May... and it consistently ranks #1 on Amazon in popularity. In short, the Nelder-Hicks plan could save the US economy from disaster... and make many investors a fortune. To see their plan, go here.

Today's Energy and Capital: The One Energy Stock You Must Own

What makes domestic oil production companies even more attractive as long-term investments are the oil and gas discoveries, and the fact that these explorations are more appealing, given geopolitical tension.

You know as well as we do that prices would come down sharply if we started producing on our own. And it'd be a strong global signal that we're not willing to be hostages of oil rich companies.

Even the President agrees.

"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said.

And we need all the oil we can get.

While the International Energy Agency's oil supply forecast won't be released until November 2008, there's growing fear of a sharp downward revision in supplies. That means supply could be much tighter than previously thought, a nightmare scenario if proven true.

Any pessimistic IEA view will shock the market, spawning oil super spikes. We've already seen prices rocket to $130, doubling year over year. And it'll only get worse on a dismal IEA forecast.

For years, the IEA has said that crude supplies and other liquid fuels would keep up with rising demand, topping 116 million barrels a day by 2030. But now there's fear that the IEA, basing findings on aging oil fields, could revise sharply lower and warn of a struggle to keep up with 100 million barrel a day demand over the next 20 years.

But IEA pessimism is nothing new. Just last summer, the IEA warned that spare OPEC capacity could fall to "minimal levels by 2012."

Even the U.S. Energy Department is embarking on its own supply studies, which could be finished by summer. But they, too, may have nothing positive to say. They already suggest that daily 73 million barrel daily output will level off at 84 million barrels. To then reach 100 million barrels a day by 2030, we'll need a sizeable boost from other fuel sources.

And if you need more of a reason for a rise to $150, $170, even $200, look no further than the Middle East.

Israeli-Iranian tensions over nuclear projects aren't doing much to help. There's a growing fear that in the event of war with Iran, the Strait of Hormuz (passageway for 90% of oil exported from Gulf producers) would be jeopardized. If that happens, we'd see an immediate oil super-spike.

Iran's Revolutionary Guards has already said it would impose controls on shipping in the Persian Gulf and Strait of Hormuz, which accounts for about 40% of the world's oil, if it were attacked.

Natural Gas Squeeze

Natural gas prices are rising just as fast as oil. Natural gas could be subjected to the same supply and demand issues that drove crude oil well above $130 a barrel.

That's as liquefied natural gas (LNG) shipments to the U.S. slow, and as companies like Cheniere and other companies drop plans to build more terminals.

Global natural gas demand has grown about 2.6% a year over the last 10 years. But in Asia, the Mid East and in Africa, demand has been more like 7% over the same time frame. And demand growth will only rocket further refinery and power growth in the developing world.

With that in mind, drilling domestically just makes sense, which makes this next buying opportunity even more attractive.

Warrior Energy (WEN.V)

This is a new natural gas company we're keeping an eye on with a focus on large undervalued assets in the Green River Basin (Wyoming).

We can tell you that the energy companies are drilling and applying for drilling permits like there's no tomorrow.

And Warrior Energy is no different. It's buying land on the cheap with expectations for considerable upside. They just paid $8 million for producing property with active development.

Warrior's current project - called Strike - consists of 3000 net acres with 11 producing wells that are already kicking off cash flow.

And the stock only trades at a scant sub-3 with long-term $10 potential upside.

Better yet, the future doesn't look too shabby.

Over the next two years they hope to demonstrate year over year growth of proven reserves, production and cash flow through acquisitions and development to justify $500 million in asset values.

The investment firm Macquarie gave Warrior a $50 million line of credit, which is huge for an early-stage energy company... and a testament to the company's game plan to increase production within a short period of time.

Again, this is a $10 stock masquerading at $3.

Companies already in the Rockies area don't seem to have a growth problem.

Berry Petroleum bought Rockies assets on January 27, 2006, and watched its stock soar from $33 to $55 inside two years.
Black Hills Corporation bought Rockies assets on March 9, 2006, only to watch its stock roar from $33 to $44.
MDU Resources bought assets on May 1, 2006. Its stock ran from a $23 low to more than $32.
Marathon Oil bought in July 2006, and watched its stock skyrocket from $35 to $65.
EXCO Resources ran from $16 to $24 after buying Rockies assets on September 30, 2006.
Encore Acquisition bought assets on January 17 and 25, 2007. Its stock ran from $25 to $65.
Forest Oil ran from $45 to $66 after buying in January 2008. And Continental Resources jumped from $25 to more than $61 after buying Rockies assets on January 14, 2008.

The potential for Warrior Energy (WEN.V) to run significantly off lows is there. They just bought assets for only $8 million. With domestic oil and gas exploration experiencing a renaissance in the U.S., we expect small emerging plays like Warrior to give early investors exceptional returns.

Take care,

Ian L. Cooper
http://www.energyandcapital.com

—————————————-

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of July 14, 2008.

The Gingrich & Boone Pickens Energy Plans: Which Energy Plan Will Work?
In the past 2 weeks, we've been inundated with two specific energy proposals to kick America's foreign oil addiction. One has come from Newt Gingrich's American Solutions advocacy group. You may have seen the commercial for the petition. The energy campaign's motto is "Drill Here. Drill Now. Pay Less."

Stooges Testify, Inflation Soars: Nothing But a Clown Show
Lost in the charade of yesterday's testimony by Bernanke, Paulson & Cox was an absolutely abysmal wholesale inflation number from the Labor Department. While the Three Stooges entertained, prices continued their journey to the moon.

Gold Mining in Mexico: An Undervalued Gold Producer Working Across the Border - Part 1
Over the next two days I am going to report on one of my favorite Canadian gold stocks mining in Mexico.

The Next Major Banking Crisis: And What To Look For in Precious Metals
Market conditions for the junior mining sector continue to deteriorate as we approach mid-summer. Several forces are currently at work, causing problems not only for our sector but for stock markets in general. Here is what I believe is happening:

Green Energy Investments: Where the Green Money's Going Now
And yet, there's no point in selling-houses or stocks. Why sell a long-term investment for less than you paid for it, especially if it's likely that the price will rise again in the next few years?

Renewable Energy in Europe: France Goes Green for Jobs
MARSEILLE, FRANCE: As beautiful as the South of France is, landscapes alone don't make the future look promising. The economies of Portugal, Spain, and southern France are feeling the pinch of the global recession more than many developed countries.

Shadowboxing the Apocalypse: Energy and the Politics of Partisan Paralysis
If it weren't such a desperately serious situation, watching our fearless leaders trying to grapple with the energy and financial crises would be hilarious.

Offshore Oil Drilling: The One Offshore Oil Drilling Company to Play this Week
It is always good to have a plan. It's not, however, good to have a bad plan. That was my initial reaction last month when the President gave Congress several steps to reduce gas prices and foreign oil dependence.

Copper Mining Companies: Why Southern Copper is a Buy
In September 2007 Citigroup analysts Alan Heap and Alex Tonks called for the spikes in coal and iron ore prices "because of demand from China and congestion at ports in Australia and South Africa." And they were spot on. So when the same analysts upgraded outlooks for coal and copper, why argue?

Insiders Buy at 2-Year Lows
These insider buys come as the company looks to boost customer food business performance, and buy back $900 million of stock with monies from the sales of its departure with its agricultural commodities trading unit.

Nuclear Energy Investing

Note: Parts of this article originally appeared in Wealth Daily. We felt it was important to share this nuclear energy article with you. It's from Wealth Advisory's Steve Christ. Enjoy.

In the U.S., no new nuclear power plants have been built in 30 years. But that could all change under a McCain presidency (I'm not backing either candidate in this article. I'm simply presenting what has been said for this article's purposes.).

McCain has already called for the construction of 45 nuclear plants by 2030, and said that his goal was 100 new nuclear plants.

And if it's not nuclear energy dependency, we desperately need a new source, as electricity demand in the U.S. alone is expected to grow 40% by 2030. We already know too well the "pocketbook" pains of $4 oil, $13 natural gas and exploding electric bills.

Here's more from Wealth Advisory's Steve Christ.

"Whether you agree with him or not, you have to admit that John McCain is the best friend that the U.S. nuclear power industry has these days.

In fact, the entire industry had to have been practically bowled over with glee recently when he called for a crash program to build 45 new reactors by 2030 along with a long-term goal of building 100 such plants.

It was enough to make the "no-nukes" crowd wince. Meanwhile, holders of nuclear energy stocks applauded.

But McCain's love of nuclear power isn't just some newfound crush in the wake of $4 a gallon gasoline. McCain has always been aglow about nuclear power.

Maybe it was all of that time he spent in the Navy aboard ships that never had to be refueled. Or maybe it is just because he recognizes that there is no realistic solution to our energy problem that doesn't include nuclear power - especially when you factor in the possibility that cap and trade could become reality.

Either way, McCain has put the U.S. nuclear industry back on the front page again. And this time, the public seems to agree with him.

The Nuclear Revival: Paving the Way for Nuclear Energy Stocks

In fact, according to a recent poll by Zogby, about 67 percent of Americans support building more nuclear power plants to expand the nation's energy portfolio.

Those figures represent a stunning reversal of fate for an industry that was dead and buried only a few years ago.

Even Barack Obama has joined in, saying that while nuclear power was "not a panacea", it is worth investigating its further development.

So in true campaign style, he's all for nuclear power, except of course when he's against it. Go figure.

Now before any of you political junkie types decide to send me some nasty email about what I have said so far, don't even bother. I don't have a horse in this race. My political idealism was crushed a long time ago under a mountain of broken promises.

To me government is nothing but a giant and corrupt black hole. In it, light doesn't stand a chance.

Even still, putting your political viewpoint aside, it would be hard to argue that nuclear power doesn't have a certain amount of inertia going for it these days.

The shadow of those cooling towers has definitely dimmed and thirty years later nuclear power in the U.S. is back. And in the wake of Three Mile Island, the U.S. is now playing catch up with the rest of the world where nuclear power never left.

Of course, that is something of a larger theme here lately. While the rest of the world has been doing everything in their power to find and develop more energy sources, we have done nothing but twiddle our thumbs.

So here we sit, in an economy pushed to the brink by high energy prices and inaction. And if you want to know why I'm so cynical about politicians that's part of it-they do absolutely nothing until there is a crisis.

As a result, no nuclear power plants have been built in America in more than 30 years, and few U.S. companies have invested in the technology to build new plants. That's true even though the U.S. draws about 20% of its electricity from 104 working commercial reactors.

High Energy Prices Add Up to More Nuclear Power

Now I admit part of the reason for this has been economic. Twenty years of cheap oil and natural gas has certainly played a role. But those days are over now, leaving only the fear of nuclear power to conquer to complete the comeback.

Now consider this the next time you open up your power bill...

The US Department of Energy reports nuclear power costs 1.72 cents per kilowatt-hour (including operations and maintenance costs). Now compare that to:

Coal at 2.37 cents per kilowatt-hour;
Natural gas at 6.75 cents per kilowatt-hour; and
Oil at 9.63 cents per kilowatt-hour

That's part of the economic math that has seventeen companies preparing license applications for as many as 31 new reactors. That's in addition to the 15 construction and operating permits already under review by the US Nuclear Regulatory Commission.

In fact, four to eight new nuclear plants are on track to be in operation by 2016-17.

Of course that doesn't exactly match the 112 new nuclear reactors that were built between 1957 and 1990, but it is a start. Moreover, it is a far cry from the 124 reactors that were cancelled partially as a result of Three Mile Island.

So clearly the tide on this issue is turning.

2 Ways to Win with the Nuclear Energy Stocks

For investors that means a following a growth trend that is already firmly in place in the rest of the developing world. All told, about over 30 new reactors are under construction in 12 countries with over 100 new plants currently being pursued.

Here are two easy ways to play the trend by buying shares of these two exchange traded funds:

Market Vectors-Nuclear Energy ETF (AMEX:NLR)-This fund is down off of its uranium based highs in 2007. But with uranium prices now projected to go as high as $90 a pound this heavily materials weighted EFT is rising.

PowerShares Global Nuclear Energy (NYSE:PKN) - A relative new fund, PKN allocates 47% to industrials, 24% utilities, 15% to mining along with an almost 10% weight to technology. That makes this less susceptible to uranium prices than NLR, which devotes 33% of its holdings to mining.

But no matter how you decide to invest in this trend, I think its pretty obvious that the nuclear renaissance has begun-no matter who wins the election."

For more information on Steve Christ and the Wealth Advisory, click here.

Good Investing,

Ian L. Cooper
http://www.energyandcapital.com

——————————

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of June 30, 2008.

BIS: Global Economy Near a "Tipping Point": The Unsustainable has Run its Course
According to a report released today by the Bank for International Settlements (BIS) the global economy has reached a "tipping point". The result says the group may be a far deeper crisis than is expected and a bout of deflation in the world's biggest economies.

Dear President Obama: Signed, William H. Gross, Ordinary Citizen
"You have inherited a mess. Your predecessor, fixated on emulating a former Republican icon from a far different economic era, chose to emphasize tax cuts for the rich and excessive consumption for all Americans."

Oil Speculators Are Not to Blame: But a "dearth" of new supplies are...
For weeks, oil speculators have been blamed for skyrocketing oil prices... but it's not their fault. It's a supply and demand issue.

Caution: High Risk Trade
Modifications suggest included further optimizing the social project in the area, mitigating the impact of open vein deposit in the affected areas of the Imataca, and improving the remediation plans at the end of the mine life as well as remediate the existing environmental damage caused by illegal miners.

The 2008 Oil Forecast
The stock was recently upgraded from "speculative buy" to "buy" with a $10 near-term price target on news that the company successfully drilled its Costayaco-4 well in the Costayaco discovery in southern Colombia.

Uranium Mining Stock: Buy and Hold American Uranium
In just two decades the world's demand for electricity is projected to nearly double! To meet this rising demand, the worldwide power sector will need to add an estimated 4,800 gigawatts of new electrical capacity to the global grid. To put that into perspective, a city the size of San Francisco requires about 1 gigawatt of electricity to function.

Investing in Algae Biofuel: The Only Biofuel that Can Take on Oil
When the price of oil rises just one dollar, the Pentagon's fuel expenses climb an astounding $130 million. So the $50 rise in oil prices over the past six months has taken over a half billion dollar toll on the U.S. government. And that's on your dime.

ANWR Drilling: Will ANWR Oil Production Come Too Late?
There's a new game being played in the media. From what I understand, the rules are easy. Simply pick somebody (other than yourself, of course) to blame for oil prices. Then, you can watch as the blame is bounced around. Unfortunately, there's no way to win the game since the blame goes back and forth repeatedly.

Investing in China: Warren Buffett's New Friend in China
The stock markets in Shanghai, Shenzhen, and even the technically-foreign Hong Kong exchange are hurting since global credit worries yanked down buoyant investor confidence last fall.

Energy Bull Market

With the cost of gasoline skyrocketing and practically every politician in America on the drilling bandwagon, it would seem as though Peak Oil is finally beginning to dawn upon all of its doubters.

It was as if crossing the $130 mark on oil was akin to crossing the Rubicon.

You may remember the story...

It was the 49 BC crossing of a small stream in Northern Italy by Julius Caesar and his army that made a bloody civil war all but inevitable for ancient Rome. Crossing the stream, Caesar remarked, "A lea iacta est," or, "The die is cast."

Otherwise known as... the point of no return.

That, in a way, is what the energy markets are pricing these days as people come to the realization that Peak Oil isn't the work of some lunatic fringe. It's real, and it's here.

Case in point:

Just last month the Paris-based International Energy Agency (IEA) made an announcement that shook the energy complex. The group stunned the markets when it revealed that it's preparing a sharp downward revision of its oil-supply forecast.

And while its findings won't be released until November, the message of the group was crystal clear: Crude-oil supplies are far tighter than previously thought!

That was a stunning reversal for a group that had basically said supply would meet demand on into the year 2030.

The group predicts 116 million barrels a day are in demand, but worries that oil supply will struggle to break over 100 million barrels a day over the next two decades... due to oil production declines.

So, then, how much investment does the IEA think it will take to smooth out this huge supply and demand imbalance?

Well, here's what they said last year, in response to the Peak Oil crisis. According to their World Energy Outlook report, "Some $22 trillion of investment in supply infrastructure is needed to meet projected global demand."

Now think about that figure for a moment, because it is as enormous as it is mind boggling.

And now consider this.

That was long before this shocker from Fatih Birol, the IEA's chief economist. In its most recent report, Birol said, "One of our findings will be that the oil investments required may be much, much higher than what people assume," he said. "This is a dangerous situation."

So $22 trillion is just the starting point on a journey that could easily double this astonishing figure.

Either way, that's enough needed investment in the energy complex to keep it going for many, many years to come. That's why we're so bullish on energy in general, including natural gas.

Let's face it. When the price of oil doubles in a year, and natural gas jumps by 136% in 10 months... the business of finding and drilling for energy becomes white hot.

That's why all of the unconventional shale plays in the Bakken, Haynesville, Fayetteville, the Barnett, and more recently the Marcellus shale, have all gone hyperbolic. You see, they're ready to produce energy right now... not in some time frame so far down the road that the market can't even see it!

Consequently, shares of the majors like ExxonMobil and Royal Dutch Shell have barely budged, while smaller players like Continental Resources Inc (NYSE:CLR) have jumped out of the box.

But don't just take it from me. Give these charts a quick look, and tell me which one you'd rather have bought a year ago.

It's no contest.

But it's not just the exploration and production companies in unconventional oil that have seen their shares rise. The oil services companies that work with them-the ones extracting all the energy-have benefited as well.

You see, shale is "tight rock," making it difficult to extract without some serious help. As a result, the rock itself needs to be fractured or cracked all along the well before the oil or natural gas can flow from it.

Moreover, before the fracturing can take place, it takes 3-D seismic mapping and horizontal drilling techniques to hit the energy-rich layers of shale buried deep underground.

However, when these techniques are successful, the result is an oil or gas well that can basically print money.

That's what Richard Findley and his partners ended up with eight years ago in their Elm Coulee site. Findley and his group were the first to successfully tap what has become known as "The Bakken"... long after Big Oil gave up and went home.

Since then, the Elm Coulee area is believed to contain some 250 millions barrels of oil, making it the biggest find in the lower 48 states in the last 56 years.

Now let's do the math on that one.

It would be 250 million X 130.00, or $32.5 billion. That's 325 followed by eight zeroes... not a bad haul for an area abandoned by the big boys.

So it's no surprise that the share prices of the companies involved in all the new drilling are firmly in a bull market.

Still, there are many other profit plays that the majority of investors aren't privy to.

In fact, I've closed 10 positions in The Wealth Advisory with seven winners averaging a 29.69% gain. Here's what we've done so far:

Adobe Systems Inc. (ADBE: NASDAQ) closed with a 32.28% gain in 11 weeks.
Converted Organics Inc. (COIN: NASDAQ) closed with a 42.11% gain in two weeks.
FXP UltraShort FTSE/Xinhua China 25 Proshare (FXP: AMEX) closed with a 27.23% gain in four weeks.
Morgan Stanley China - SHORT POSITION (CAF: NYSE) a 32.51% gain in four weeks.
PowerShares DB Commodity Idx Trking Fund (DBC: AMEX) a 14.26% gain in eight weeks.
PowerShares DB Energy (DBE: AMEX) a 15% gain in nine weeks.
VMware Inc. (VMW: NASDAQ) a 44.44% gain in eight weeks.

And that's just the tip of the iceberg, considering what's going on in the energy markets.

Make no mistake... The energy bull market still has room to run. After all, when you cross the Rubicon, there is no telling what might happen.

Your energy-loving analyst,

Steve Christ

Chief Investment Analyst
The Wealth Advisory

PS. The Wealth Advisory team has uncovered a new oil and gas play with a fast-growing business model that's taking the unconventional O&G world by storm.

The Bakken, Barnett, Haynesville, Fayetteville, the Marcellus... and even Russia. You name the hot spot, and its products and services are being used there.

The best part is... The company's share price is on the verge of a major break out that could give it a 25% gain or better... even in this down market.

Click here to find out more about this company, and to learn how you can grab your slice of the $22 trillion pie.

http://www.angelnexus.com/o/web/6369

The Big Picture on Q2 2008, Part 1

The second quarter of the year is almost over, so it seems like a good time to zoom out and look at the big picture again (especially after my last few articles, which were pretty technical).

The trends I indentified in my big picture update for the first quarter (Part 1, Part 2, Part 3) have only intensified. The events in Q2 continued to be negative for the economy, but excellent investment opportunities for those who took advantage of a few of my tips.

Let's run the bases again...

Financials

The big story in Q1 was the implosion of Bear Stearns, and the beginning of the continuous mudslide of bad news for the financial sector this year. In the second quarter, the poster child for the credit market's woes has been Lehman Brothers, down 62% for the year. And it looks like Morgan Stanley might be next on the block.

In both of these financial bear runs, I picked up a quick 10% here and a quick 10% there by playing the UltraShort Financials ProShares ETF (AMEX: SKF). It's important to get the timing right with a play like this, but it's not that hard if you pay attention. I watch the news carefully, looking for the early whispers of distress from the financial sector. I buy it when the market is up (which is when SKF is cheap), then after the bad news is plastered all over the front pages, I look for a particularly bearish day to get out.

For those inclined to play a little speculative money now and again, I think it's a good hedge against the sickening jolts that have hit the markets with increasing frequency this year.

The fundamentals of a recession are firmly in place now. The whisper on the street is that the really bad news is yet to come, as broad swaths of the consumer credit markets buckle and break under the strains of steadily higher food and energy costs—the two things that the oft-quoted Consumer Price Index (CPI) explicitly leaves out—and a collapsing housing market.

If the whisper is right, and I think it is, then the markets are in for another downturn. So watch the news on the financials, and keep your powder dry for their next "good" day.

Oil

The volatility in the oil markets has increased quite dramatically in the second quarter, where a $5 to $11 swing in the price over a single day is now becoming more the norm than a rarity.

As I discussed in my piece two weeks ago ("It Takes Two To Contango"), we should expect to see such volatility increase, as the reality of the supply and demand balance really sinks in, and the market seeks to find the new, proper value for oil.

A chorus of analysts have popped up in recent days to claim that oil prices are in a speculative bubble, and their fervor only increased when oil hit a new record just shy of a $140 on Monday.

My favorite piece was an article in Fortune last week titled "Why oil prices will tank," which speculated, "It's even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below." All I could do was shake my head in wonder as the author carried on about how a "new abundance" would come from shale, tar sands, coal, and "an OPEC desperate to regain market share."

If that last bit didn't make you laugh out loud, read it again.

Investor's Business Daily, another venerable financial publication, went just as badly awry in its article three weeks ago, "Peak Oil: An Idea Whose Time Is Up." I was aghast at the parade of wrong information and blatant ignorance in that one. I intend to debunk it formally, but it's going to take a whole ‘nother article to do that job.

So if you thought everybody was already on the same side of the trade in this seemingly endless bull run for oil, think again. Some of the most-read financial journalists in the country still don't understand what "peak oil" means, don't comprehend the numbers, don't understand the crucial differences between oil shale, tar sands and crude, and apparently, some even think oil is overvalued by nearly 3x!

For smart investors like you who do understand these things, though, all the confusion out there simply makes for a good trading environment. When the noise is all wrong, you buy, and when everybody comes around to the way you see it, you sell.

If you took my suggestion in my article two weeks ago, subtitled "Pullback in Oil is a Buying Opportunity," and bought the United States Oil Fund LP (AMEX:USO) that day, at the bottom if oil's most recent dip, you'd be up about 10% on that position now. Not bad for a two-week gain!

Oil prices continue to have an inflationary effect on everything, from food to gasoline to everyday products (thanks to transportation costs). We'll get into the food aspects in the next part of this series.

The next major cue on oil will come from a Saudi-hosted summit meeting of oil producers and consumers this coming Sunday. The kingdom is worried that instability in the markets and high prices will undermine the oil market and encourage alternative energy. King Abdullah has reportedly instructed his ministers to pursue any solution to skyrocketing oil prices.

It is expected that the Saudis will announce a 200,000 barrel per day increase in production starting in July. My bet is that even if they do announce it, it won't affect prices much, or for very long.

They may also decide to raise their discount on crude. That might actually assuage the markets for a while, because it would help restore the profitability of refiners, and should eventually bring down the price of gasoline and diesel.

But in a few weeks or months, even such measures would lose their impact as the markets realize that the world really has no ability to increase production from here. Saudi Arabia has announced that they only intend to add about 1 million barrels per day (mbpd) of production capacity through the end of 2009. That increase still seems highly unlikely to me, but just taking them at their word, they are currently producing about 9.45 mbpd out of a claimed capacity of 11.4 mbpd, with expectations to raise it to 12.5 mbpd, and after that, nada mas.

So while the world waits for the next Saudi announcement, just remember: it's just more short-term noise along the long-term signal of ever-higher oil prices.

The Dollar

The influence of the dollar on commodity prices, particularly oil, continues to be underestimated. I'll dispense with the charts this time, but my observation in the Q1 update, that oil prices moved opposite to the dollar, continues to hold. According to calculations by Bloomberg, the dollar as valued against the euro has moved in the opposite direction from oil 93% of the time this year.

That's a very strong correlation, and should not be overlooked when we hear the latest from Mr. Bernanke. He seems to have successfully jawboned the dollar into a stabler pattern since it crashed to the late-April low, but the recent rally now appears to be losing steam as the expectations of a rate hike in August start to look overblown.

Without a strong rebound in the dollar, which seems extremely unlikely given the Fed's current position somewhere between the rock of inflation and the hard place of recession, oil will have to remain at or above its current heights. So don't go running for the exits the next time you hear some "expert" saying that oil prices are going to crash—instead, buy on any weakness.

Gasoline and Diesel

Gasoline and diesel both shattered all previous records (even the inflation-adjusted ones) in Q2. The national average price of gasoline is now over $4 for the first time, and diesel is trading at the highest premium to gasoline in 15 years, 16% more than gasoline at $4.69.

Diesel is the world's most popular transportation fuel, and refiners simply haven't been able to make enough of it. Not only is it by far the preferred fuel in Europe, most of the rest of the world is currently experiencing shortages of it due to enormous demand and limited supply. China, for example, imported 34 times as much diesel in May as it did last year, partly in preparation for the Olympic Games. Across the Third World, diesel is increasingly being used to run generators as their grid power fails, due to shortages of natural gas and reduced hydropower.

By comparison, 43% of the world's gasoline is consumed in the U.S., where demand is falling as prices rise. Although the sticker shock of gas over $4 has been hard on Americans accustomed to cheap gasoline, we're still paying very low fuel prices compared to Europe and elsewhere in the industrialized world, where gasoline in the $8-12 range is the norm. As I have said before, we should really be grateful to the rest of the world for keeping our gas prices so low by not competing with us for it!

Here in California, a 20-gallon fillup now costs me about $90, and I have no doubt that my first $100 fillup is just around the corner. Believe me, I'm not looking forward to it, but also believe that investing wisely in oil is your best defense against those ever-increasing prices.

While some destruction of diesel demand will take place eventually as vehicles are switched over to run on natural gas, electricity, and other alternative fuels, those transitions will take years to complete. I expect the current imbalances between gasoline and diesel to remain firmly in place for quite some time.

Natural Gas

The trend in natural gas is unchanged from Q1: prices have beat a straight line upward all year, rising from $8.30 on January 10 to $12.95 today. This trend also shows no sign of slacking, for there is very little net excess capacity for gas production.

Consequently, 2008 has been a sweet year for natural gas producers, with some of my favorites delivering better than 60% returns so far:

Coal

Coal has was full of surprises in the second quarter. My Q1 observation that coal didn't have the signs you would expect from a growth industry was based in reality, but no sooner had I published that article than a massive spike in coal prices began.

In Q2, prices for domestic coal went through the roof:

Average Weekly Coal Commodity Spot Prices
Business Week Ended June 13, 2008

Source: EIA, Coal News and Markets

The explosion in prices was reflected in some of the industry's better coal stocks:

Despite this performance, the EIA expects domestic coal consumption to be lackluster, posting less than 1% growth this year after only 2% growth last year, and a lousy 0.6% growth next year.

On the production side, EIA expects a 2.9% growth in production this year, and increasing inventories with coal consumers.

So if it wasn't domestic consumption, what drove prices up?

You guessed it: exports.

Exports of coal posted a sharp jump at the end of last year, and they are continuing to drive demand:

Source: EIA, Quarterly Coal Report, Oct - Dec 2007

The primary region consuming all that exported coal is Europe, where a very limited and uncertain supply of natural gas has been driving up grid prices. The outlook for electricity in Europe is increasingly dim, and they're trying to make up the difference with coal. Flagging Australian coal exports to Europe, along with competition for supply with the emerging nations of the FSU, have really stretched the supply-demand equation.

Exports of coal from the U.S. to Europe jumped 19% from the third to the fourth quarters of last year, and were 52% higher at the end of 2007 than a year earlier.

Again, I do not see anything resolving the tension in this very tight market any time soon. It looks to me like another major bull run has begun for coal. The three stocks in the above chart should continue to do very nicely.

Electricity

The price spikes for natural gas and coal have translated directly to increasing prices for grid power. According to the 2008 Short Term Energy Outlook, June 2008, the Energy Information Administration (EIA) expects average U.S. residential electricity prices to increase by about 3.7% in 2008, and 3.6% in 2009.

The average rate of those historical price increases from 1997-2007 is 2.26%.

In other words, the EIA has just predicted that for the next two years, your bill is going to rise at a rate 63% higher than it has in the past!

For the communities who haven't been aggressively seeking to deploy as much wind and solar and geothermal generation as possible, it spells a long march to ever-higher prices.

But for solar and wind generators, this is great news, because it means that the breakeven point on their projects just got bumped up a couple of years. It's also great news for those who make solar and wind equipment, like the many companies we have recommended in the pages of Green Chip Stocks.

Don't Panic, Profit

As the fallout from rising energy costs, particularly fuel shortages in the Third World, starts to settle around us, it's causing a great deal of pain and unrest and confusion. People are starting to panic.

We understand their fear, but panic isn't helpful. What's important is to be able to understand the trends, play them wisely, and put yourself in the best position you can to weather the even harder days ahead.

That's why we created the $20 Trillion Report—to spot the plays that will bring you profits while everybody else panics.

Next week, I'll update you on the outlook for renewables, food and fertilizer.

Until next time,

Chris

Energy and Capital

Power Grid Stocks

This past Wednesday, Alternative Energy Speculator's Nick Hodge spoke about smart investing in power grids. And I'd like to revisit that article and add a stock to the five stocks he mentioned here.

But first some background on why antiquated power grids must be updated.

California's energy consumption efforts have done little to prevent blackouts. From 1979 to 1999, California residents jumped from 23 million to 33 million. Today, there are 38 million and expectations for 45 million residents. In the long, hot, sticky days of summer, there will be blackouts. Greater electrical dependency from a larger population makes it difficult to say everything will be fine.

The California Independent System Operator has already warned that the "likelihood of going to a Stage 3 power emergency is 10 percent compared to 3 percent last year." Stage 3 allows the state to cut power to certain customers to prevent power system failure.

San Diego Gas and Electric saw record electricity demand in 2006. That record was then broken in 2007. And while the company has taken measures to reduce 2008 blackouts, the only way to prevent blackouts is voluntary conservation and "on-call interruptible loads."

And when the power grid can't take the pressure this year, we'll see widespread power failures.

New York, for example, doesn't have enough electricity to satisfy consumers.

As Hodge said Wednesday, Tuesday was the "second straight day New York set a record not only for high temperatures, but for electricity usage as well."

As temperatures soared, Consolidated Edison scrambled to fix failures across parts of the Bronx, Brooklyn and Queens. It affected homes and public transportation. And it's only June.

Look, if temperatures persist through the hot sticky months of summer, more strain will be put on electricity supply, resulting in further blackouts. Parts of Brooklyn saw a 45% jump in peak demand in a week's time. Again, it's only June.

And just today, a power outage caused a blackout in parts of Washington, D.C., including the White House, leaving many without power and causing major delays.

We'll likely hear similar news throughout the hot summer months, as too much demand is put on antiquated power grids. It's the reason we like Beacon Power (BCON:NASDAQ).

Beacon Power

For some background on how well this stock has moved on power outage news, check this out.

On August 14, 2003, a power failure in the northeastern USA and central Canada hit 50 million people. BCON popped from 25 cents to $1.25.

On September 19, 2003, Hurricane Isabel destroyed electricity for 4.3 million people across the United States and part of Canada. BCON popped from 60 cents to more than $1.

On September 4, 2004, five million people in Florida lost power after Hurricane Frances. BCON ran from 25 cents to 75 cents.

On August 26, 2005, 1.3 million people in Florida lost power because of Hurricane Katrina. BCON ran from $1 to $5.

The stock ran slightly in 2006 on the Queens Blackout news, and again in 2007.

And that's because of the company's potential.

This is the company with flywheel technology, which stores power. These guys can buy power from the grid at cheaper costs and sell it at higher cost.

Just the other week, they got a $340,000 contract to provide their energy storage system to support a wind integration project sponsored by the California Energy Commission. And they recently received environmental approval to build a 20-megawatt flywheel plant in New York.

Better yet, not only did Kaufman Brothers report that BCON can "likely tap into a $700 million energy storage market and post revenue from commercial clients by the end of the year," they started coverage at a Buy rating with a $3 price target.

And they just received a commitment for up to $5 million in loans that'll help fund expansion of a production facility from Mass Development's Emerging Technology Fund and the Massachusetts Technology Collaborative.

Remember, there will be more blackout news this summer. There are antiquated U.S. power grids that will not be able to handle the demand on scorching hot days.

Good Investing,

Ian L. Cooper

———————————-

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of June 9, 2008.

Precious Metals Mining Stocks: Get Out of the US Dollar Now!
Investors worldwide in various markets appear to have had their fill for market risk after watching their investments lose significant value in recent months. This has been particularly true with the junior mining share market where investors have become skittish in buying shares for the time being as shares corrected beyond what most analysts had expected.

Chinese Jewelry Sales up 36% Yr-on-Yr: Up US$3 Billion Since 2005
Growth of the jewelry industry in China has been developing much faster than anyone expected.

They're At It Again: Another Dog And Pony Show
So it looks like the Saudis want to hold a summit to discuss how to handle the rising cost of oil, declaring that they will guarantee the availability of oil supplies now, and in the future. Of course they neglect to state how much oil they're guaranteeing. But I can tell you one thing - it'll be less than the global demand.

The Impending Oil Export Crisis: Never Mind Peak Oil; Worry about Peak Exports
The problem is simple: Net oil exporters are awash in the cash from their oil exports. As they grow up and continue to industrialize, they consume more of their own production, which cuts into their exports.

Colorado Oil Shale: Don't Get Caught in This Oil Investment Trap
About a month ago, Goldman Sachs raised their oil price forecast to $141 a barrel during the second half of 2008. The analysts over at Morgan Stanley said crude oil could reach up to $150 a barrel by July 4, 2008. Even Russian natural gas giant Gazprom set their prediction to a whopping $250 a barrel in the "foreseeable future" (whatever that might possibly mean). So in the face of record oil prices, why won't I invest in the Green River Basin oil shales?

50% Gains for Reading a Blog: Not a bad start, considering we're only warming up
On June 3, 2008, Lehman had just broken multi-year support. We mentioned that the "best way to trade the possible drop was to buy the October 25 put options (LYHVE)." At the time, the option traded at $3. Today, as LEH breaks $25 to the downside, the put option trades at $4.55 - a 52% gain in days.

The Economy's Worst Nightmare: Disaster by April 2009?
"With the subprime mortgage crisis already crippling the U.S. economy, some experts are warning that the next wave of foreclosures will begin accelerating in April, 2009."

"Homeowners" Buy and Bail: The Latest Twist in Fraud
Here's a story from the housing world that is a perfect example of that trait. It seems that a number of upside down homeowners have decided to take matters into their own hands.

UK Recession Investments: Where To Invest As The United Kingdom Stumbles
You know the UK is in trouble when the Organization for Economic Cooperation and Development (OECD) singled out the UK economy with gloom and doom forecasts.

Canadian Oil Investments

I told you before that the President wasted his time in Saudi Arabia and I wasn't kidding.

In fact, he was on the completely wrong continent.

By now you've probably gotten used to the huge amount of attention that energy has gotten lately in the mainstream press. News stations have gone so far as to label it, "The American Energy Crisis."

Believe me, the problem is a little bigger than that. Granted, the U.S. is leading the charge in oil consumption, using roughly 20 million barrels of crude everyday.

But, even if Saudi Arabia is one of the few countries left in the world that can actually increase their production capacity over the next few years, the Saudis still aren't our largest source for oil.

According to the Energy Information Administration (EIA), we've been receiving more crude oil from Canada than anywhere else since 2004. You can take a look for yourself here. If you also notice, Canada is one of the few countries that has been able to increase their imports to us since 2002. Furthermore, if we take into account the total amount of crude oil and products, we're getting more from Canada than the entire Persian Gulf since 2006!

We've previously talked about how the U.S. is setting up for a flood of Canadian oil production. At the time, we focused on the important role that the Alberta oil sands will play over the next decade. Today, however, it's not the oil sands that is attracting most of our Canadian oil investment attention...

Saskatchewan's Oil Field Attraction

It's the oil boom going on next door to Alberta. Specifically, the southeastern section of the province. You see, here we're not talking about the heavy oil sands, which requires a large amount of energy to extract the oil.

Instead, I'm referring to the higher quality, light pools of Saskatchewan oil located in The Bakken discovery. A discovery large enough to catch the eye of Alberta oil companies.

One of my readers was quick to point out that the Bakken (both on the U.S. and Canadian side of the formation) will require a huge amount of investment. I couldn't agree more. Do I think the Bakken will be pumping out enough oil to completely relieve us of our addiction to Middle Eastern oil?

I wouldn't hold my breath on that one.

Although the U.S. Geological Survey reported that up to 4.3 billion barrels are technically recoverable in the U.S. side of the Bakken, there's only been speculation as to exactly how much oil is located on the Saskatchewan side.

Either way, there's a lot of oil up for grabs.

And the bottom line for many of my readers comes down to this: How can you invest your hard earned money in the oil sector?

Better yet, is it still worth it?

Canadian Oil Field Investments

I'll let you decide for yourself which side of the field your on concerning oil prices. If you honestly believe that putting your money into oil investments today isn't worth it, I'm probably not going to change your mind.

Then again, if you can see where our energy picture is headed, you're not too late. And as far as the risk involved?

Well, that's all up to you.

So far in 2008, one of my favorite Canadian oil stocks has been TriStar Oil and Gas (TSE: TOG), and a perfect example of how well a company can perform in southeastern Saskatchewan.

TriStar's exposure to the light oil pools in southeastern Saskatchewan is one of the main catalysts for their 2007 growth. In February, 2008, TriStar exposure increased after acquiring Bulldog Resources Inc. The move gave TriStar another 2,200 boepd of high quality to their production, as well as access to another 10 net sections of acreage in the Bakken.

If you're looking for an up-and-coming oil and gas producer, check out Petrostar Petroleum Corporation (CVE: PEP). Trading on the Toronto Venture exchange, Petrostar shares jumped more than 40% during trading today after the company signed a letter of intent to develop certain leaseholds in the Bakken oil play.

Of course, there are even more ways for investors to get a piece of the action...

Stay tuned.

Until next time,

Keith Kohl

Energy and Capital

Domestic Oil Production

Note: Parts of this article originally appeared on Wealth Daily.

"Energy stocks....the only way a human is going to make any money" — Matt Simmons.

Claims that the world has "plenty of oil left are bunk," says Sadad Al-Husseini, a former executive at Saudi Aramco, in recent articles. "Oil-producing countries are inflating the size of their oil reserves by as much as 300 billion barrels by padding supposedly proven reserves with ‘probable' reserves and tar and oil sands."

Oil production, he continues, has peaked and will begin dropping in 15 years or less. Companies mix "proven finds with probable reserves that may have only a 50 percent chance of getting out of the ground."

Even the International Energy Agency is concerned with world oil supplies, studying depletion rates at about 400 oil fields. We'll talk more about the IEA study below.

Regardless of the studies, the global economy wants a solution now.

After paying $4 a gallon, we were told that gas prices fell 2% last month.

But that's what happens when gas prices rise 5.6% in April, and economists are allowed to statistically readjust for seasonal oddities.

You see, historically, gas prices rise in April as we near warmer weather months and summer driving season. Taking that into consideration, the government adjusts its data to reflect the expected rise in gas prices, underscoring trend variations.

And since gas prices did not rise as much as they've historically risen in April, the adjustment showed that prices fell in April.

But flawed stats aside, energy costs are skyrocketing.

Americans want a solution... and they want it now. $4+ at the pump, $127 a barrel oil, $11.50 natural gas, skyrocketing electricity costs... America and the global economy want a solution now.

Domestically, there's the Bakken solution. There's even oil sitting under the Rockies.

And what makes these domestic oil production companies even more attractive as long-term investments are the oil and gas discoveries, and the fact that these explorations are more appealing, given geopolitical tension.

You know as well as we do that prices would come down sharply if we started producing on our own. And it'd be a strong global signal that we're not willing to be hostages of oil rich companies.

Even the President agrees.

"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said.

And we need all the oil we can get.

We've all heard the $200 oil forecasts.

Goldman just raised its oil price outlook to $141 from $107, citing supply issues.

Arjun Murti believes that we could see $150 to $200 oil over the next six to 24 months.

OPEC President Chakib Khelil won't rule out $200.

And, while the International Energy Agency's oil supply forecast won't be released until November 2008, there's growing fear of a sharp downward revision in supplies. That means supply could be much tighter than previously thought, a nightmare scenario if proven true.

Any pessimistic IEA view will shock the market, spawning oil super spikes. We've already seen prices rocket to $130, doubling year over year. And it'll only get worse on a dismal IEA forecast.

But IEA pessimism is nothing new. Just last summer, the IEA warned that spare OPEC capacity could fall to "minimal levels by 2012."

Natural Gas Squeeze

Natural gas prices are rising just as fast as oil, and could be subjected to the same supply and demand issues that drove crude oil well above $130 a barrel.

That's as liquefied natural gas (LNG) shipments to the U.S. slow, and as companies like Cheniere and other companies drop plans to build more terminals.

Tankers full of gas from Africa and the Middle East are going to other countries instead, pushing up the price of gas and choking our stockpiles ahead of U.S. hurricane season.

Truth told natural gas prices are going a lot higher if a solution isn't found.

Not only are we still bullish on our Bakken trades, we've got our eye on several new domestic oil stocks. The editors of Pure Energy Trader are currently doing their due diligence and are looking to issue buys shortly.

Good investing,

Ian L. Cooper

———————-

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 26, 2008.

Energy Efficient Transportation: How Peak Oil is Transforming Air Travel
These days, energy costs figure in to make a vacation seem anything but glamorous or carefree, and energy-intensive tourism companies have gotten hit hard. But with new energy efficient technologies being employed almost daily, we see a niche where smart investors can make serious money.

Biofuel Energy: Why There May Still Be A Future In Biofuel Investing
I'll be the first to admit it. I'm not a huge fan of corn-based ethanol. There are just too many better solutions out there. Things like Plug-In Hybrid Electric Vehicles (PHEVs) or, dare I say it - mass transit systems like those which are operating successfully and profitably throughout Europe.

The Tipping Point in the Peak Oil Debate: The Game Is Afoot
Those of us who have watched for the inevitable arrival of the peak oil crisis have been waiting for years for the day when we no longer had to fight for the acceptance of the idea, and could start getting on with the hard business of what to do about it. And then, just like that, it happened.

How to Profit from Beijing Pollution: Pollution and the Olympics
It was January 2004 when the World Health Organization warned of bird flu outbreaks, fearing that the disease could latch on to normal human influenza virus, and spread among the human population. One stock jumped from about $1.50 to about $3.

Renewable Energy IPO: Uncorking New Energy Profits
In the Alentejo Forest, money really does grow on trees. Located in Portugal, inland of the southwestern coast of the Iberian Peninsula, the Alentejo Forest is home to a remarkable crop: the cork tree. In fact, the area is so laden with the trees that it's responsible for about half of the world's total cork supply.

Nuclear Energy Investments: Nuclear Energy Lines up for a Piece of the $22 Trillion Pie
As the markets get all giddy about the prospect of a ten dollar pullback in the price of crude, it is easy to be conned into thinking that "this too shall pass." But the larger truth is that in less than two weeks we have gone from an "oil is a bubble" theme to having "America's Oil Crisis" splashed all over the screens on CNBC. It was as if crossing the $130 mark on oil was akin to crossing the Rubicon.

The Future of Air Travel: No Airline Can Make Money on $123+ Oil
Short the airlines. "No airline can make money at $123-a-barrel oil," says Southwest CEO Gary Kelly.Last summer, before the fuel price run, we were okay with flight ticket prices. Airfare, at the time, was compatible with budgets. And all was okay for airlines, showing signs of life with profitable quarters.Then the price of fuel went nuts, running to $132+.

Richard W. Fisher Nails It: Tough Talk From the Dallas Fed Chief
Long before the sound bite ever became the equivalent of news, there were great speeches. Here's one of them by Richard W. Fisher, a man who would be my immediate choice to replace Ben Bernanke. It's long by blog standards but its well worth the read.

Barry Diller Chatter Ups EXPE: The Options Pit Blog
As we said earlier this week, keep an eye on Expedia (EXPE). It's rocketing higher on chatter that Barry Diller is looking to take the company private. The June 25 calls are seeing heavy interest with 9,467 contracts trading hands, as compared to open interest of 6,467. The June 22.50s are seeing interest, too, with 3,260 contracts traded, as compared to open interest of 1,531.

Reiterating a Buy at New Highs
As we said last week, continue buying it. It looks as if the momentum crowd is catching up after the company had its credit facility increased from $13 million to $20 million. Sources tell us the increase was due to improvements in the company's reserves and financial conditions, as of December 31, 2007.

$200 Oil Stocks

After a stock split, shares of Petrobras (PBR:NYSE) have become even more attractive.

At $71, you're buying a dividend paying $314 billion company with a P/E of 24, $103 billion in revenue, and $8 billion in cash. It's a great long-term bet with $100 price targets.

Plus, on an unexpected investment grade upgrade, the Brazilian rally has only just begun.

Standard & Poor's surprised the market when it lifted the country's long-term sovereign credit rating to investment grade, thanks to faster Latin American growth and a decline in international debt.

Brazil's GDP is forecast to grow 4.8% this year after a 2007 expansion of 5.4%, and isn't expected to be impacted much by the U.S. slowdown ripple effect. That's because its exports to the U.S. makes up only 2.5% of Brazil's GDP.

And if you need further reason to get bullish on Brazil, Citigroup believes the Brazilian Bovespa will end the year 10% higher at 74,000. "The main benefit of Brazil's elevation to investment grade is yet further increases over time in capital inflows into Brazil, which should have the effect of raising the valuations attached to Brazilian financial asset prices,'' said the bank.

"The upgrade ‘is a strong long-term positive for the country's financial markets' and probably will reduce the cost of capital by 40 basis points to 5.7 percent."

It's part of the reason Petrobras is an attractive buy.

Earnings Aren't Too Shabby Either

PBR posted a 68% rise in Q1 profit, easily beating expectations on higher oil output and prices. Net profit totaled 6.9 billion reais ($4.1 billion) from 4.1 billion reais year over year. EBITDA rose to 13.8 billion reais from 11 billion. The Street was only looking for profit of 5.6 billion reais and EBITDA of 12.6 billion reias.

But the biggest reason to get bullish on PBR is the idea of $200 oil.

These are the guys that explore and produce oil and natural gas, selling to Brazil and other foreign markets. They operate oil tankers, pipelines, marine, river and lake terminals, power plants, you name it.

They've recently discovered three giant oil fields in the Santos Basin, and confirmed a natural gas deposit in Jupiter. And if reports on the potential size of the Carioca-Sugar Loaf are correct, the company could be looking at 33 billion barrels of oil, or the third-largest oil field in the world. That's in addition to the Brazilian oil finds in Tupi and Jupiter, which are each estimated to hold six to eight billion barrels.

Even if it takes years to see this oil potential, betting against a giant like PBR may not be the smartest move.

Good Investing,

Ian L. Cooper

P.S. How to Bank Gains when the Lights go out...

In the long, hot, sticky days of summer, there will be blackouts. Greater electrical dependency from a larger population makes it difficult to say everything will be fine.

And when the power grid can't take the pressure this year, we'll see widespread power failures.

How many people will voluntarily shut down power on a blistering hot day?

Fortunately, there's one stock that'll run, like it has with other power failures. And we're looking to bank at least 50% every time it happens.

On August 14, 2003, a power failure in the northeastern USA and central Canada hit 50 million people. One stock popped from 25 cents to $1.25.

On September 19, 2003, Hurricane Isabel destroyed electricity for 4.3 million people across the United States and part of Canada. One stock popped from 60 cents to more than $1.

On September 4, 2004, five million people in Florida lost power after Hurricane Frances. One stock ran from 25 cents to 75 cents.

On August 26, 2005, 1.3 million people in Florida lost power because of Hurricane Katrina. One stock ran from $1 to $5.

In 2006, we witnessed the Queens blackout that affected more than 174,000 people. The stock ran slightly.

The stock ran again in 2007 from 75 cents to more than $2.20 around the time that power interruptions shut down some of the Internet's biggest sites.

Listen, I could go on with the reasons why I like it as a seasonal trade, but I also like it for potential profitability.

These are the guys can buy power from the grid at cheaper costs and sell it at higher cost.

Just last week, they were awarded a $300,000 contract to provide energy storage system to support a California Energy project. And just the other day, they received environmental approval to assemble their energy storage system in New York.

But while the stock ran up more than 20% on the news, the run is far from over. We're just nearing the hot, sticky months of summer where blackout news could be commonplace.

SC Trading Pit just revealed the stock here.

———————————-

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 19, 2008.

Gold Investment Advice: Play the Market, Don't Get Played
There are two types of investors, those who play the market and those that get played by the market.

Plug-In Hybrid Electric Vehicles: GM's Future: See It With Your Own Eyes
Over the past few years especially, I've had little sympathy for some of the major auto-makers that have been losing loads of cash. The way we see it, they brought it on themselves by trying to force the market, instead of supplying it properly. Especially General Motors...

Haynesville Natural Gas: 1 of the Biggest Natural Gas Fields in the U.S., and The Stock Play Behind It
On Saturday, my colleague Ian Cooper talked about the upcoming boom in wind energy. As you know, Boone has been one of the biggest supporters of wind energy. But wind isn't the only energy source praised by Pickens. In the wake of record crude oil prices (reaching as high as $129.60 during trading today), natural gas has followed suit.

Renewable Energy Companies: How NASA and Eggs are Hatching Spring Profits
What we're seeing, as I hinted at earlier, is climate change prevention spending finally trickling down to the individual company level.

Little People Mean Nothing: "This is unbelievable. Disgusting," says Mozilo.
You'd think that after making millions by brilliantly running a company into the ground with an army of attorneys at your side, Mozilo would know the difference between "Reply" and "Forward."

Alternative Energy Investments: How To Turn Record Oil Into Record Profits
So far this year, Americans have purchased 1.7% less gas than they did last year.

Let's Sue OPEC: Can you imagine the Chavez reaction?
Yep, the House wants to sue OPEC for "limiting oil supplies and working together to set crude prices." The bill, if passed, would subject OPEC oil producers, including Saudi Arabia and Venezuela to the same antitrust laws that U.S. companies follow. Can you imagine the Chavez reaction?

Peak Oil and the Bakken Formation: President Admits to Peak Oil
As oil prices continue their endless northern trek, those of us "in the know" knew this day would come. The peak oil argument is no longer open for debate... It's here. We just need to figure out how to deal with it.

Uncle Sam's Phony Economic Numbers: The Fix is In
In case you haven't noticed lately, there is something of a gigantic disconnect between the realities that consumers face every day and the statistics on inflation that the government is kind enough to provide us with.

Investments in Vietnam: Economic Growth in Vietnam and China
You can see it all over the Middle Kingdom-old government-run department stores with bare shelves and outdated styles have given way to western-style showcases of modern fashion and technology-often in the same building.

How to Profit from LED's Powerhouse
We're not talking about small industry growth either. In 2005, the LED industry was valued at $205 million. By 2011, it could be valued as high as $1 billion—388% growth in six short years.

Investing in Energy ETFs

It seems we're nowhere near the top of the market for the OIH oil service ETF.

The International Energy Agency is anticipating worst-to-date worldwide reserve numbers, with investment requirements beyond what major players have on hand.

IEA head Nobuo Tanaka said Thursday that the Paris-based organization will soon provide a "more realistic supply potential" appraisal...

That tells us what we've heard to this point may as well be thrown out the window.

It's a data shake-up that will reverberate for years, not just in speculators' ears but with real fundamental sticklers too.

You see, instead of demand-side tunnel vision, the IEA is finally turning its eyes to what matters—what's underground.

The agency is probing the world's 400 leading oil fields, and no one on the NYMEX is expecting rosy data when the tally comes in.

IEA chief economist Fatih Birol says, "the oil investments required may be much, much higher than what people assume."

"This is a dangerous situation," the lead number-cruncher continues.

But if you're an energy ETF investor, that danger is pretty darn profitable.

Energy ETF Investments Shine

Now, many long-term marketeers get out of a play after a loss of 8% or so, and they're careful not to buy into raging bullish charts.

But Investor's Business Daily's ETF rankings these days are full of winning oil, natural gas, and commodity stocks that are appetizing buys despite their recent run-up.

United States Natural Gas Fund (AMEX:UNG) is up more than 54% on the year through May 22, and PowerShares DB Oil (DBO) has gained 43% in the same time.

Normal IBD logic would say you should observe these tickers from afar and bang your desk in frustration for not having bought in December.

We say it's time to get in.

The reason, quite simply, is chaos.

Where supply and demand should stand alone as factors for weighing investment prospects, the oil industry keeps adding wild cards.

Sure, there's the risk premium added to a straight barrel of light, sweet crude coming out of the ground in places like Nigeria and Iraq.

But the IEA statistical shuffle that's now in the works tells us something far scarier than pipeline blasts or widespread siphoning—even reserves in the safest places are in question.

The numbers just aren't reliable, because the IEA and others have adopted a backwards model where price is extrapolated from demand in top economies, not supply.

Supply, it turns out, is connected to decline rates that lie between 4% and 10% a year. 4.5% is what Cambridge Energy Research Associates estimates, but if Fatih Birol's gloomy tone rings true later this year, who knows what kind of supply drops we'll find out about?

Again, that uncertainty and the fact that oil futures are the textbook example of leading indicators means the only way is up.

There is no countervailing momentum now to counteract a rise, other than politicized pot-shots (suing OPEC while nixing gas taxes and drilling in Alaska may be the perfect storm of foolishness).

You know what, though? Despite or maybe because of all the uncertainty, I am sure about one thing—the bleaker the situation looks for oil junkies, the better oil service companies will do.

That's why I'm super-bullish on oil field services companies, the cowboys who are going to the farthest-flung places and using the newest technologies...

And charging higher and higher prices, because they can.

Buy Oil Services HOLDRs on Dips

When's the last time you heard about an analyst boosting 36 companies at once?

Tuesday, that's exactly what happened.

James Crandell over at Lehman Brothers is overweight Transocean Inc. (NYSE:RIG), raising his price target on that oil service and drilling giant by nearly 7%...

That's even after a 75% climb since last spring.

Being the international market watcher over here at Energy and Capital, I'll tell you that even though the wells may be dryer and harder to reach, there's no shortage of work in the pipeline for Transocean.

Same goes for other top players like Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), and Baker Hughes (NYSE:BHI).

And they're all neatly packaged for you in the Oil Service HOLDRs ETF (AMEX:OIH), which pulled back slightly on Thursday but has room to run.

OIH is a little rich for some people's blood at over $200 per share currently, but consider what you get—a direct tap into the oil industry's last, best hope for capacity increases to offset dwindling production.

I guarantee you don't want to wait for the final IEA numbers later this year to make your move.

Buy OIH anywhere below $215 per ETF unit.

Regards,

Sam Hopkins

Wind Energy Investing

Note: Part of this article originally appeared in Wealth Daily. We didn't want you to miss out.

U.S. consumers are slightly aggravated.

Living in world of flawed seasonal adjustments, we were just told that gas prices fell 2% last month.

Huh, you say? You paid much more? So did we. But that's what happens when gas prices rise 5.6% in April, and the economists are allowed to statistically readjust, smoothing for seasonal oddities.

And since gas prices did not rise as much as they've historically risen in April, the adjustment showed that prices fell in April.

But flawed stats aside, energy costs are skyrocketing.

Americans want a solution... and they want it now. $127 a barrel oil is just another reason why Americans want new energy solutions. Natural gas is nearing $11.50. Electricity costs are skyrocketing. And Americans, and the rest of the world for that matter, want a solution now.

Domestically, there's the Bakken solution and the solar solution. But now there's talk of wind energy solutions.

Twenty years from now wind energy could produce 20% of America's electricity.

An Energy Department study found that wind energy could generate 20% of U.S. electricity by 2030, as compared to today's one percent.

The good news — The Energy Department report finds that achieving a 20% wind contribution to U.S. electricity supply would:

Reduce carbon dioxide emissions from electricity generation by 25 percent in 2030.
Reduce natural gas use by 11%;
Reduce water consumption associated with electricity generation by 4 trillion gallons by 2030;
Increase annual revenues to local communities to more than $1.5 billion by 2030; and
Support roughly 500,000 jobs in the U.S., with an average of more than 150,000 workers directly employed by the wind industry.

To achieve 20%, wind turbines would have to produce 300,000 megawatts of power, compared to today's generated 16,000 megawatts.

It's doable.

And it should come as no surprise that billionaire investors are lining up for a piece of the coming wind energy stocks boom, including T. Boone Pickens.

But before we get into Pickens' investment, let's review why investing with billionaires can pay off handsomely.

Follow the Smart Money

"A lot of people don't know this, but Ian Cooper and I developed an insanely simple, but highly effect trading technique in 2001," said Brian Hicks on February 13, 2008. "We called in the ‘Billionaire Boys Club.'"

The system was simple enough... buy and hold the same stocks that the billionaires were buying in the open market. And, it worked brilliantly.

We followed Sumner Redstone religiously in 2002 and 2003, as he bought millions of shares of Midway Games and WMS Industries in the open market.

And it turned out to be one of the best trades we made all year.

Midway games (MWY) quadrupled in price in 2003, flying from $3 to more than $12.

WMS Industries (WMS) went from $12 to $21 inside of six months:

And we did it again in 2008 with T. Boone Pickens.

Trading alongside billionaires - the ultimate smart money - is easy money.

"You have a chance to make a fortune following one billionaire who has snapped up millions of shares in a small energy stock. He's acquired a 3 million share stake in a natural gas company that currently trades a market value of about $600 million," said Brian on February 13, 2008.

That company was Interoil (IOC:AMEX).

And we were spot on...

It made sense not to bet against Pickens. He's not one to throw around investment dollars at just any company. A man of his stature is sure to have done plenty of research, and is sure to be well in the know before investing in any company.

It's why we followed his lead into Interoil after he increased his holdings in the beaten down oil play with explosive opportunities in Papua New Guinea.

Yep, thanks to Pickens, IOC became the buying opportunity of a lifetime for Pure Energy Trader.

And it paid off just as we planned.

After months of waiting, our Canadian company with operations in Papua New Guinea announced a gas and gas liquids discovery in the Antelope structure in its Elk-4 well.

Says a recent press release:

"The Elk-4 well has successfully penetrated the Antelope structure, a new discovery which will significantly augment the gas found at the Elk-1 discovery well. Drilling operations experienced a gas kick and a flow of gas and gas liquids to surface which was circulated and flared. The well is now being prepared to drill deeper under pressure followed by comprehensive evaluation.

‘This well confirms the presence of hydrocarbons in the Antelope structure," said Mr. Phil Mulacek, CEO and Chairman of InterOil. "We are very excited about this early result and we look forward to drilling ahead to establish the commerciality of this discovery.'"

And there's still further upside for IOC.

But as with most billionaires, diversification is the key to profit making.

"When I go into these markets, I expect to make money on them. I don't expect to lose," says Pickens.

With plans to spend some $10 billion to build the world's biggest wind farm, the billionaire has gone green.

Pickens' Mesa Power just ordered 667 turbines from General Electric to begin a $10 billion wind far project in Texas. When completed by 2014, the wind farm will be capable of producing 4,000 megawatts, or enough energy to power 1.2 million U.S. homes.

And it's a brilliant move, as we deal with $122+ oil.

"Oil fields have a declining curve - you find one, it peaks and starts downhill, you've got to find another one to replace it. It drives you crazy! With wind, there's no decline. "You need a giant plan for America," he says. "Not the pissant 83 megawatt [windfarm] deals being stamped all over the country. There needs to be a huge plan from someone with leadership. It's going to take years to do, but it has to start now."

Fortunately, we're familiar with the potential as well.

Says Brian Hicks:

"We simply cannot ignore about the wind energy market is its growth during 2007. Last year, a record-breaking 20,000 megawatts (MW) of wind power were installed around the world. That means that wind energy supplied approximately 94,000 MW of energy. In other words, that's a growth of around $36 billion.

Let's put this into perspective...

Between 2005 and 2007, both Germany and Spain's wind power capacity experienced impressive growth (about 21% and 51%, respectively). Now look back at the U.S. growth.
Our capacity catapulted nearly 84%!

Don't think for a second that wind energy is about slow down...

Since 2000, wind power production has increased fivefold. Remember that during that period, oil prices have grown nearly the amount. Now that a peak oil is starting to get under the global spotlight, we can expect to see a massive interest in renewables like wind energy.

I've personally read reports from the U.S. Department of Energy stating that wind energy supplied in just three U.S. states could potentially power the entire nation!

Think about it for a minute.

We're talking about a source of energy that is a renewable, clean, has a low operating cost and has technology that's been around for over century (the first power producing windmill was created back in 1887).

But it isn't just the past growth that we're impressed with. Over the next two years, the Global Wind Energy Council (GWEC) predicts that the world's installed wind power capacity will practically double to 149.5 GW. If you notice, the installed capacity in 2007 was 94,000 MW-which was higher than originally forecasted!"

Lesson learned... Any one that says you can't make money following billionaires isn't making the money we're rolling in.

Good Investing,

Ian L. Cooper

—————————-

In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 12, 2008.

Housing Bottom: The Worst is Over... Again.
There is no bottom for banks until housing bottoms. And that won't happen until 2010... if we're lucky. Yet, the banking community would have us believe we're bottoming now. But they're wrong. Banks will continue to crumble and should be shorted at tops.

Income Investing: The 7 Golden Rules for the Lazy Investor
By Warren Buffett's own math, matching the gains of the U.S stock market over the last century is going to be quite a tall order. In his most recent annual report Buffett once again pointed out that in order to equal the U.S. market over the 20th century, the Dow will need to close at roughly the 2,000,000 mark on December 31, 2099.

Investing in Eastern Europe: Profits in Russia and Former Satellite States
The Soviet Union, Czechoslovakia, and Yugoslavia are no more. But the countries that comprised them now enjoy some of the world's highest economic growth rates, creating ever-increasing options for investors.

Peak Oil and the Rail Revolution: Say Goodbye to Cheap Air Travel
"I had no doubt that the air travel business was in for a world of hurt, once oil prices started going up fast. And when that happened, air travel to such far-flung destinations would be out of reach for regular folks like me. I just didn't think that day would come quite so soon. I can already see my window of opportunity to lay on the beaches of Thailand, or hike the rugged mountains of Tibet or Japan, closing."

Foreclosures Hit New Records: Courts Jammed with New Notices
Riddle me this housing bulls (what's left of you). How can housing possibly be anywhere near a bottom when foreclosures continue to set one new record after another?

Solar Technology Stocks: Don't Miss the Next 20% One Day Solar Gain
The renewable energy markets are maturing quite rapidly. The solar sector, in particular, is showing signs of advancement as clear leaders are emerging every day. What we're seeing is a shift in the way the market as a whole views this industry.

Iamgold Increases 1Q Net Earnings by 205% yr/yr: Production Increases to 234,000 Ounces of Gold
Iamgold produced 234,000 ounces of gold during the quarter, compared with 219,000 ounces one year ago, and realized an average gold price of $899 an ounce, 39% higher than in the same period of 2007.

Investing in Physical Gold: Breaking Two Myths of Investing in Physical Gold
There is a herculean mountain of inaccurate information floating around about investing in physical gold bullion.
Among these erroneous concerns is the belief that storing physical gold is a difficult and that physical gold bullion is illiquid, making it an unwise investment.

WorldWater & Solar Technologies: Clean Water from Solar Energy
U.S.-based company WorldWater & Solar Technologies (WWAT.OB) has experience in dealing with water-related crises. From New Orleans to the Middle East and hopefully soon to Myanmar, they create the solar panels that drive water pumps for many applications.

Trading Secrets of the 3160s
OPEC President Chakib Khelil won't rule out $200 oil, even though supply is adequate, because the market is driven by the dollar, as the world oil markets face their biggest supply disruption in years. "In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he said.