It turns out I was not alone when I discussed my bullish outlook for the nation’s coal producers last week. Earlier today, a Goldman Sachs (NYSE:GS) analyst gave a similar opinion.

The only difference between my article and his note to clients? His sent the industry soaring.

As I wrote Friday, my favorite coal producer, James River Coal (NASDAQ:JRCC), used strong contract prices to beat its Q1 estimates and send shares surging. The momentum from last week’s announcement has continued through today. Over the last five trading sessions, shares of the company have jumped by more than 55%.

There is a bull on the loose, for sure.

Thanks to the analyst’s positive note, James River is not alone today. Shares of Massey Energy (NYSE:MEE) are up by over 20%. National Coal Corp (NASDAQ:NCOC) is up by about 35%. Alpha Natural Resources (NYSE:ANR) is up by 10%. And rounding out my top five, Arch Coal (NYSE:ACI) is up by over 11%.

The big question is will the gains continue?

Here at home, the only person that can answer that question is Obama. As I wrote earlier today, his cap-and-trade notion could put the crimps on the sector’s future prosperity. Fortunately, most legislators are quickly realizing the idea is one of the most politically dangerous to come from Washington in a long time.

As the cap-and-trade nonsense begins to be pushed onto the next generation of leaders’ laps, coal prices will rise again. Even better, the bullishness will take place when international growth is starting to make headlines once again. It will be a coal-industry double whammy.

If you have been following the sector, you know China has a slew of coal-burning power projects in the works. Just because we are all sunshine, lollipops and alternative energy here, does not mean Asia is giving up its ultra-cheap infrastructure anytime soon.

International coal demand will grow, setting a floor for domestic prices. With one of the world’s largest reserve of coal, domestic producers will benefit from international growth.

Essentially, even though the coal industry got slammed by the current financial meltdown and a new wave of political fury, the industry is little changed from its phenomenal run just a few years ago.

I maintain my outlook and recommend buying coal-related plays on any dips.

Source: Lighting a Fire Under America’s Coal Industry

• A day after posting better-than-expected quarterly earnings, Goldman Sachs Group Inc. (GS) sold $5 billion in stock to repay federal bailout money. All totaled, Goldman sold 40.65 million in shares at $123 a piece, 5.5% below Monday’s closing price, Reuters reported. Goldman received a total of $10 billion from the Troubled Asset Relief Program.
• Amsterdam-based Royal Phillips Electronics NV (PHG) said its cost-reduction program will save the company more than 500 million euros ($664 million) this year, Bloomberg reported. The announcement came with its quarterly earnings report, in which Europe’s largest consumer-electronics maker reported its second-consecutive loss.

• First quarter earnings for pharmaceutical and health care retail giant Johnson & Johnson (JNJ) fell, but beat estimates by cutting costs, Reuters reported. The company $3.51 billion, or $1.26 a share, in the first quarter compared with $3.6 billion, or $1.26 a share, in the first quarter last year. Johnson & Johnson reaffirmed its 2009 profit forecast of $4.45 to $4.55 a share.

• Singapore’s economy may shrink 6% to 9% this year, the government said in its third reduced forecast this year. To counter contraction, the government will adjust the trading range of the Singapore dollar. “The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” Vishnu Varathan, an economist at Forecast Singapore Pte., told Bloomberg.

• Discover Financial Services (DFS), will cut 500 jobs in May, or 4% of its workforce, Reuters reported, citing company sources. Discover, the fourth-largest U.S. credit card network, last month posted a deeper-than-expected quarterly operating loss, cut its dividend and set aside more money to cover bad loans as defaults increase.

• In a sign bankers are gaining confidence that the worst of the financial crisis is over, the London inter-bank offered rate (LIBOR) for three-month dollar loans is dropping at the fastest pace since January, Bloomberg reported. Debt strategists at Credit Suisse Group AG (ADR: CS) Societe Generale SA (ADR: SCGLY) and Royal Bank of Canada (RY), three of the 16 banks that provide the data that sets Libor each day, say the declines will continue.

• Weak demand and a supply glut could cloud the coal industry’s prospects for the rest of the year, even as U.S. coal miners are likely to show strong quarterly profits this month, Reuters reported. But big U.S. coal producers should weather the economic downturn because they sold much of this year’s production at higher prices negotiated before the recession hit last September. Coal prices are expected to stay low throughout 2009 until production cuts by major miners begin to restrict the coal supply.

• Madoff Securities International Ltd., filed for bankruptcy protection in Florida under Chapter 15 of the federal bankruptcy code. The code is designed to block U.S. lawsuits against foreign companies reorganizing overseas that have U.S. operations, Bloomberg reported. Bernard Madoff pleaded guilty last month to 11 counts including fraud and money laundering for directing the largest Ponzi scheme ever.

Source: Global Investment News Briefs Wednesday April 15, 2009

This from Today’s Financial News:

This is turning out to be a big week for the energy markets. Prices for commodities like natural gas, coal, gasoline, diesel, and of course, crude oil are dropping precipitously. Right now, we are very close to some critical pricing levels. If we drop below them, even bigger declines could be on the way.

First off, let’s look at the king of all commodities, crude oil.

As I write, a barrel of crude is just $1.27 away from trading for less than $60. Many energy experts believe once oil drops below that crucial level, there is nothing stopping it from dropping drastically lower. With a little help from a strengthening dollar, we could see a barrel of crude trading in the $40 range by the end of the year. $30 is a stretch, but it is not out of reach.

Thanks to interest rate cuts in England and throughout Europe today, the dollar stands to continue its currency domination. When London announced it slashed its key interest rate by 150 basis points, the value of the dollar jumped almost immediately.

It now takes $1.58 to buy an English pound and $1.27 to buy a euro. Both figures were climbing over the past week, but thanks to today’s widespread increases in liquidity, European currencies are one again dropping in value. They will drag oil prices down with them.

But crude is certainly not the only source of energy on the decline. Even after a surprisingly low weekly build in natural gas inventories, the popular source of home heat is trading well into negative territory. Right now, a million BTUs of gas is trading for $7.19. Technical analysts believe if it does not close above $7.30 today, we are in for another major drop.

****** Oil at $50 a Barrel — Gold at $500 by Christmas?  ******

With stocks as volatile as nitroglycerin, gold should be trading above $2,000 an ounce! But the dollar insurrection has shaken up the commodities markets. Some experts now put gold’s downside at $500… even $400.

What if they’re right?

TFN’s options strategist Andrew Snyder has developed a gold hedge strategy that could make you money on your gold position either way. Find his Special Report on the Members Only Reports section of HotStockConfidential.com. To become an instant member, click here…

———————

According to a report by the energy department, natural gas supplies are not quite as high as most experts believed. Over the last week, inventories grew by 12 billion cubic feet. The consensus estimate was for growth of nearly twice that figure.

It is important to note that inventories are 3.7% below where they were a year ago. That is a clue that the fall in prices was not necessarily caused by a reduction in demand. It is a sign that speculators have been forced from the market.

The bullish side of energy

Finally, it is important to look at coal prices. Thanks to [stell producer] ArcelorMittal’s (NYSE:MT) announcement yesterday that it will slash its production capacity by as much as 35% in the coming months, the coal industry has suffered significant setbacks.

Coal giants like Massey Energy (NYSE:MEE) and Peabody Energy (NYSE:BTU) have been significantly wounded over the past two days. They have given back all of the gains they made last week.

Fortunately, there is a glimmer of hope on the horizon. ArcelorMittal promises it will boost production in mid-2009. That means coking coal will jump in demand and the companies that produce it will see their valuations increase significantly.

That is great news for James River Coal (NYSE:JRCC). Shares have been reduced by dramatic proportions and are dirt cheap today. I stand by my recommendation to buy the company’s stock.

The energy industry is in flux. For folks with a long-term bullish sentiment like I have, this is a great buying opportunity.

Remember… Buy when everybody else is selling.

Source:Oil nears $50: Is this a buying opportunity?

The prices of oil, gold, silver, coal, cocoa, natural gas and the rest of the gang were up today thanks to some key rate cuts across the globe. China and the United States cut their short-term lending targets and it appears that Japan may follow suit.

Rate cuts mean there is an increased chance of a boost in economic activity and that means commodities traders have a reason to increase prices.

Crude prices surged by nearly 10% today on news that energy supplies decreased faster than expected over the last week. Experts were expecting inventories to surge by as much as 1.5 million barrels, but the weekly government report showed an increase of just 500,000 barrels. That means demand has not slipped as much as traders anticipated.

Some strong profits

For energy investors, today’s commodities increases come as good news. For the folks that followed my advice from earlier in the week and invested in James River Coal (NASDAQ:JRCC), the rise in coal prices is fantastic news. Your positions should be up as much as 28%. Those are fantastic profits in just two days.

Over the next few weeks and months were will experience a bit of a dichotomy in energy prices. The price of crude will continue on its longer-term trend towards $50 per barrel as global demand falters. But commodities like coal that do not see such wide swings in demand will work towards higher prices, making investors in companies like James River plenty of profits.

Finally, the price of gold jumped by nearly $20 today. That means investors are beginning to realize that the Fed’s recent monetary policy changes will greatly increase dollar liquidity. Gold prices will continue to rise over the short-term.

The market is beginning to settle down and trading opportunities are cropping up all over the place. I am quite excited about the action on the commodities market today. While some of the price gains will certainly reverse, the news proves that the doom-and-gloom sentiment is changing.

The next few weeks will be great to savvy investors.

Source: Commodities mini-rally hands us big gains in James River Coal (JRCC)

She asked if anyone had cold feet. Our hand shot up. Our legs shot out. Our shoes flew off. Fate took its course.

Apart from our new found foot-warmth, something else is giving us a warm glow today. The coal boom isn’t over yet. You haven’t missed it. That’s reason to celebrate. A Lleyton Hewitt-style show of fist-pumping bravado might be in order.

Coal prices might be staying higher longer than anyone expected.

Dalrymple Bay terminal is one of the largest coal ports in the world. It can ship 65 million tonnes of coal in a year. That isn’t enough to feed all of China’s coal power plants. But it makes Dalrymple a focal point for Queensland’s coal production.

Babcock and Brown, infrastructure owner and not much else these days, owns the port. It heralded an ambitious expansion at Dalrymple last year. By December, total capacity would be 85 million tonnes.

Funny thing, ambition…

It won’t happen. That’s not Babcock and Brown’s fault. Rains came. Builders languished. The new expansion will be finished in March at best.

That means supply of coal to China will be a few million tonnes shorter than investors expected. That may not sound like much. China’s imported 51 million tonnes of coal last year. Who gives a hoot about an extra 3 million?

We do. We give many hoots. We’ve got a truckload of hoot coming your way. We’ll explain why in a minute.

First, a key point. We were surprised to find that Newcastle, Australia’s other big coal port, just announced an 18% fall in shipments. You’d think coal producers would be swarming the place while Dalrymple’s full.

There’s nothing wrong with Newcastle. But the same rains that hit the port in Queensland delayed the miners themselves. They simply don’t have the coal to ship.

The grand new coal expansion is certainly having a few teething problems.

Now…the important part.

This is a marginal situation. Marginal situations are a type of investment idea that often escapes the average person’s attention. They don’t look particularly enthralling on the surface. But everything happens at the margin.

A premium example is Saudi Arabia’s oil production. The world uses 86 million barrels of oil per day. Saudi Arabia produces around 9 million. It’s special because it has the ability, although limited, to add new production. Most other countries are running at full capacity.

The world oil market is stretched tight, like a fitted bedsheet on an expanding air-bed. But the bed is growing as more Asians buy cars. Saudi Arabia may be the only corner of the sheet left with any give.

But here’s the thing… it doesn’t need to add millions of barrels of new oil to have a significant affect. It announced an extra 350,000 barrels yesterday. That’s only 0.4% of world oil demand. Tiny. Miniscule. Marginal.

Well, the oil price fell US$3. More on that below.

You see, it doesn’t take a lot to move a tight market. So if China misses out of 3 million tonnes from Dalrymple Bay when it wants 50 million overall…that’s quite a lot.

Website Globalcoal keeps indexed prices of coal. It also keeps track of the prices at major ports like Newcastle. They’ve all had big movements in the last couple of weeks. One index shifted 14%.

The short story is that coal prices may just keep rising. It’s not too late to invest here. It’s still a hot asset. And there just isn’t enough of it. That’s the kind of asset you want to hold.

Last week the Associated Press reported, “Utilities nationwide are raising rates and are likely to push for even more dramatic increases in electric rates in the coming months.”

Americans are already strapped for cash due to rising gas and food prices and a sinking real estate market. So why’s electricity joining the scrum?

Well, a large part of the blame lies with steel… As I wrote last week, steel prices worldwide are skyrocketing. This week, we’re going to look at one of the ramifications of soaring steel prices… soaring coal prices.

Coking coal is the type of coal used in steelmaking. Demand from steelmakers is driving prices higher. In fact, many steelmakers, including the world’s second-largest producer (Nippon Steel), recently agreed to pay triple what they previously paid for coking coal.

Take a look at the following chart of coal prices since 1996…

The Global Insight coal index doesn’t contain any U.S. coal – it’s 60% South African, 30% Colombian, and 10% Australian. But the market for coal, like oil, is global. When the price of foreign coal spikes, the U.S. exports more of its coal… resulting in higher U.S. prices.

So the steel rally has swept coal along with it. But coal prices have not yet gone parabolic like steel prices. Does that mean coal is a good buy for people who are bullish on steel?

Trend followers might find coal attractive. But there’s no easy way to bet on the price of coal except through coal stocks… And coal stocks are expensive right now.

Take a look at the following chart…

Coal Stocks are Expensive

Investors are excited about the coal industry and have bid up the price of coal producers in relation to the price of coal. And any falter in the growth rate of coal prices could lead to a sharp drop in these stocks. So here’s how to play the coal boom.Wait for just such a pullback before buying your favorite coal stock. A few of the big names are Peabody (BTU), Consol (CNX), Massey (MEE), and Arch (ACI). Or you can buy a basket of coal producers with the Market Vectors Coal ETF (KOL).

Coal produces about half of all the electricity generated in the U.S. With coal prices soaring, it’s likely you’ll feel the effects of soaring coal prices in your electricity bill… But if you buy coal producers at the right prices, you should see some profit, too.

Good investing,

Ian Davis

I recommended Bucyrus about a year-and-a-half ago. The company makes coal and copper mining equipment. I could have gone with a coal-mining company instead. But rising coal prices had made coal companies a bit expensive. Bucyrus’ price was still cheap. It was probably a vote of “no confidence” on a softening domestic market and uncertain global prospects… supposed signs that dirty coal was falling out of favor.

I knew better. It probably had something to do with the fact that I like to keep things simple. And there’s something very simple and compelling about the number 1,000. That’s how many coal-fired plants are scheduled to be built in the next five years, many of them in China and India.

I also knew that China and India had ambitious nuclear-plant expansion plans. So ambitious, in fact, that there was little likelihood of coal taking a back seat from either country stepping up its nuclear plant construction timetable.

And nuclear – not solar, wind, or geothermal – is the only competitive energy source to coal, in terms of cost and scale. Oil and gas? C’mon. On a per kilowatt basis, they weren’t competitive two years ago. Now, they’re completely off the map.

The other thing I know about coal plants is that they don’t die. They just get rebuilt as they get into their 20’s and then 30’s. Sort of reminds me of Northwest’s aging fleet of airplanes, except you don’t have to fly coal plants, thank goodness.

This brings me to the third thing I know about coal plants. To paraphrase an old Geritol commercial, they don’t get older, they get better. (That commercial has to be at least 25 years old. Do you remember it?) Let me explain.

A great deal of equipment that goes into coal plants has shelf lives of between 10-20 years. And replacing them is a little tricky.

In some ways it’s like you and I going out and getting a new washer and dryer to replace the old one. The new ones will be more effective and efficient. That is, it’ll do a better job washing our clothes and it’ll do it on less energy.

But our washer and dryer aren’t hooked up to a vast and complex array of machinery – all working together to pump out electricity. Replacing a 15-year old piece of machinery with a new one is hard because they usually aren’t made anymore. The new-and-improved part usually comes in a slightly different shape and size. And these small differences can create huge headaches. Even getting it from the OEM (original equipment manufacturer) is no guarantee that you can slip it into the factory without a great deal of re-engineering.

This brings me to the final (sort of) thing I know about coal plants. They’re cleaner than you think. Replacing parts and components is a chance to upgrade. If you’re going to spend serious money and have engineering challenges, you might as well go for the replacement machinery that gives you the most improvement in not only effectiveness and efficiency…

But also in the environment. Oddly enough, as these coal-fired plants all over the world get older, the environmental gap between them and ever-cleaner new plants gets smaller, not bigger.

I happen to know this because at one time I supplied old coal plants in Asia with new parts from American OEMs. These plants weren’t pretty to look at. The re-engineering tended to give these plants a meandering jerry-rigged look. One of the ugliest coal plants in all of creation was one in Taipei. I supplied a ton of parts to it (I don’t think there’s any connection between my role and how ugly it was, but I can’t swear to it.) But it also was one of the most efficient coal-fired plants I knew.

Just goes to show you, looks aren’t everything.

Look, coal will never be the flavor of the day. And, l guarantee, every few years it’ll be written off. Don’t believe it. When oil and gas end their run and begin to drop, coal won’t follow. Of all the energy commodity plays, it’s the most durable… safest… and longest-lasting.

Coal plants aren’t the only things dependent upon a constant stream of parts. Bucyrus’ after-sales market is huge. When I found out that the company was doubling its capacity to make spare parts for its used mining equipment, it struck home.

Spare parts aren’t glamorous or sexy. But it’s something I know about. If they could prop up coal-fired plants, certainly they could prop up sales of a single company that mined the very stuff those plants need.

Sure, it was just a coincidence: A manufacturer whose reliance on spare parts for growth neatly bookended one of the hidden props of the coal-energy market it was part of. If all our picks had to have these neat little coincidences, we wouldn’t get anywhere with our portfolio, would we?

But sometimes a pick just speaks to you. And you have to listen. That’s how it was with Bucyrus. Spare parts were the hidden story and my own personal insight into the company and the sector it belonged to. Nobody mentions coal and spare parts in the same breath. Not even Rusty, the maestro investor of mining. But it’s a great back-end business. The 175% gain I’ve made from Bucyrus so far (and it shows no signs of slowing down) backs up my contention that you should go with what you know.

When you make a connection that others aren’t making, chances are you’re on to a good thing.Good Trading,

Andrew Gordon

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.]

I live in Pittsburgh, and grew up here as well. Both figuratively and literally, Pittsburgh is built on coal. Coal is the remains of ancient plant life, buried within the rock record.

For example, one of the most extensive and valuable mineral resources in the U.S. is called the Pittsburgh Coal Seam. The Pittsburgh Coal Seam shows up in outcrops all over town, if you know where to look and what you are seeing. But there is a lot more to this hunk of rock.

The Pittsburgh Seam extends underground all over western Pennsylvania. The Pittsburgh Seam is high-grade coal and can be as much as 6-8 feet thick. That’s a lot of energy stored up in one place.

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

A Behind-the-Scenes “Guest Pass” to Profit in the World’s Most Secretive “Millionaire’s Market”

Beginning tomorrow at 7:10 A.M. EST, you can use your guest pass to go behind the scenes in the financial community’s best-kept secret: the “Millionaire’s Market.”

Once inside, you’ll begin to legally “withdraw” $810 or more per week — and you’ll be able to deposit the money directly into your retirement account!

Read on here…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A century or more ago, coal from the Pittsburgh Seam was abundant and cheap. People heated their houses with coal, cooked with coal, powered simple engines with coal. And all over western Pennsylvania, people like Henry Frick and Andrew Carnegie pulled a heck of a lot of money out of that Pittsburgh Seam.

They built mines, powered mills and created immense industries based on burning coal. More fundamentally — if not philosophically — they profited from harnessing and releasing the stored-up energy from ancient sunshine.

Energy and Capital

Let’s think about that for a moment. It was not that capital was cheap back in the last century. Gold was gold. Money was money. When they borrowed funds, Frick and Carnegie paid the same interest rates as anyone else anywhere else. But they succeeded, and did so in great fashion. What was their advantage?

Well, it gets back to that Pittsburgh Coal Seam. In the last century, western Pennsylvania had rich seams of coal located near the surface. Pittsburgh had proximity to some of the best energy reserves in North America. So coal became the foundation of industry. Energy powered industry, and industry created wealth.

The rivers of western Pennsylvania made it easy to transport that coal. That is, using barges to float things down the rivers required relatively less energy per ton-mile to move the coal to Pittsburgh’s mills. And using the rivers meant that it required less energy per ton-mile to move the value-added products out to the interior of the country, and to the world. (For example, the steel locks on the Panama Canal were built at Pittsburgh and floated down the Ohio and Mississippi rivers, across the Gulf of Mexico and to Panama.) Yes, it took capital to gain access to the energy sources. But the energy sources also leveraged the capital.

In its own way, energy is a form of capital, isn’t it? And it is a major competitive advantage to control a source of low-cost energy.

In fact, control over reliable sources of low-cost energy may be even better than access to cheap capital, especially in years to come. There are so many dollars in this world that almost any darn fool can borrow them, or how else to explain what has been happening on Wall Street lately? But ample and low-cost energy can certainly multiply the effectiveness of capital. Ask Frick or Carnegie.

The Price and Consequences of Using Coal

Have you seen the price of coal lately? In 2008, thermal coal prices are set to double, from about $55 to $125 per ton. That’s based on a recent agreement between Japan’s Chubu Electric Power and the giant mining firm Xstrata, and it should become the benchmark for 2000-09 contract prices worldwide.

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

Brace Yourself, It’s Coming

We asked all the market experts we know, and they all agreed on one thing: a coming stock market apocalypse. The writing is on the wall, and the catastrophe we’ve been hearing about could be here sooner than later.

If you haven’t started planning for these disastrous events, you’re already behind the pack. Start your survival plan now. Click here for details…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Spot prices for thermal coal have tripled in the past 12 months. And spot prices for coking coal (used to make steel) have quadrupled in the last 12 months. Just in the last two months, those prices have doubled. Do you notice any patterns?

Let’s boil it down to a few key points. The cost of the world’s “traditional” energy source — coal — is skyrocketing. And about 40 percent of the world’s electricity is currently generated using coal. Many other industries use even more coal, from steel makers to cement kilns.

So if coal prices are going up, what will that mean for electricity prices, or steel, or cement or whatever? They are headed up, as well. I would say grab your oxygen mask. But that’s a bad joke, because of the carbon dioxide (CO2 ) issues that people blame on coal.

The Time for Geothermal Arrived

So where can we in North America get significant amounts of “clean” electricity with minimal CO2 emissions? Not from coal. How about windmills? Yes, when the wind blows. How about solar? Yes, when the sun shines. And how about geothermal? Yes, all the time. 24/7/365.

Really, the stars of economics and politics are aligning on this one. The time for geothermal has arrived. Welcome aboard.

Until we meet again…
Byron W. King

P.S.: As long as we’re talking about energy, did you happen to see oil prices yesterday? Somehow oil almost touched $120 and things are still looking grim. As OPEC continues to squabble and Peak Oil reaches the front pages, could $150 or even $200 oil be that far off? Click here to decide for yourself…

— Here’s a cheery way to start your week: More than two-thirds of American Gen Xers — those aged 27-42 — don’t think they will ever be able to stop working. And don’t think they’ll ever see a dime from Social Security or Medicare.

“The Gen X group is the most anxious about their finances,” Chris Moloney of Scottrade told Reuters last week.

Of the 1,000 people they talked to who were 18 and older, nearly 40% percent said they had saved less than $25,000 for retirement. Conventional wisdom suggests if you want to live for 20 years on about $50,000 per year — whatever that will be worth at that the time — you’ll need to have $1 million stashed away.

“Gen X is in the middle of a ‘retirement perfect storm’ of very high expectations, low retirement savings and massive concern about the future of Social Security,” Moloney says.

Thirty seven percent said they would like to have between $1-5 million saved for retirement — even if their ability to save this money leaves such sums in the realm of wishful thinking.

Not that we want to reignite the debate among readers about which generation is “to blame” for the state of things, but we also note that 64% of baby boomers say they’re ready to retire — and aren’t worried.

Take that.

Worth the paper it’s printed on…

— Retail sales were up in March…but mostly because gasoline keeps costing more.

The Commerce Department says retail sales rose 0.2% in March, a tad more than the flat reading analysts were expecting. But throw gasoline out of the equation, and they were ruler flat, indeed.

If the figures took inflation into account, which they don’t, the outlook for retailers would be even more discouraging. Still, a 0.2% increase in March looks better than, say, the revised 0.4% decline in February…

— U.S. stock markets began the week moving sideways, taking a breather after GE’s earnings disappointment Friday and before Citi and Merrill reveal whatever they’re going to reveal later this week.

But Goldman Sachs isn’t waiting to make its call: Earnings season has had an “awful” start and stocks will head downward this spring.

“Early signs are awful,” says a Goldman report out today. “We expect generally disappointing results and a swath of lowered profit guidance that will drive the Standard & Poor’s 500 Index lower in coming weeks,” perhaps as low as 1,160, before a rebound by year’s end to around 1,380 — which would put the S&P down 6% for the year.

That’s a remarkably gloomy call for David Kostin, Goldman’s new chief forecaster — at least compared to his predecessor, the ever-optimistic Abby Joseph Cohen.

— Wachovia needs cash, and quickly. Ho-hum. The bank plans to float $7 billion in new shares and slash its dividend by 41%. It’s the second time Wachovia’s had to scramble for capital just this year.

Wachovia jumped into the adjustable-rate mortgage pool with both feet at the most frothy stage of the bubble in 2006 by purchasing Golden West — whose business was focused on one of the most airheaded states, California.

— But that’s just the beginning of the financials’ pain this week, as many of the top firms reveal first-quarter earnings… and probably more write-downs, too. Citigroup will likely write down $10 billion in debt this week…which would add up to a first-quarter loss of $3 billion. Merrill Lynch will likely write down another $5 billion, for a loss of $2.7 billion.

That’s still a drop in the bucket given that write-downs industrywide total $250 billion to date…and that everyone from George Soros to the International Monetary Fund is forecasting $1 trillion, give or take, by the time all is said and done.

— Citi’s announcement last week that it will unload about $12 billion in debt onto private equity at 90 cents on the dollar highlights another problem — one that’s “entirely separate from subprime mortgage lending,” writes Strategic Short Report’s Dan Amoss. “It’s another symptom of the credit bubble disease.”

The $12 billion is money Citi hoped to raise in the credit markets to finance leveraged buyouts. But when the credit markets seized up last summer, Citi had to take the deals onto its own books.

“Investment banks are stuck with an estimated $250 billion worth of this buyout debt on their balance sheets,” says Dan, “or in off-balance sheet entities for which they’ve made guarantees. Until they get rid of it, credit will remain fairly tight.

“Financial stock bulls point to this $12 billion sale as evidence that the leveraged loan sector of the credit markets is thawing. But I remain a financial stock bear, because this sale is only a tiny part of the market and only one of the many other credit-related problems plaguing investment banks.” For ways to play Dan’s skepticism, see the Strategic Short Report.

— Asian stock markets tanked overnight, fearing the worst from U.S. financials this week. Shanghai was down 5.6%, Hong Kong 3.5%, the Nikkei 3%.

In consequence of price caps on electricity rates, soaring coal prices have forced many power plants to run at a loss. Among 4,773 large-capacity power plants in China, almost 42% recorded losses in the first two months of 2008. This is 6.35% more than a year earlier. The losses totaled 13.79 billion yuan ($1.97 billion), or more than triple the year-earlier figure.

Zou Yiqiao, director of the price and financial supervision department of the State Electricity Regulatory Commission (SERC), has advised major power companies to merge with or acquire coal producers and transporters to help stabilize costs and supplies. Zou reportedly stated that utilities should slow the expansion of their thermal-power capacity and instead invest in coal transport firms and mines.

According to a SERC spokesman, the Chinese government will “allow power costs to reflect coal prices” some time in the future. In addition to thermal coal plants, China has a major program to build out renewable energy sources and boost electricity output.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!