Baltimore — (TFN): We all have a friend like him. For me it’s a guy named Greg. He has some great ideas and his entrepreneurial spirit runs deep, but for some reason, his plans never seem to make it to fruition. Somewhere from the drawing board to the production line, he runs into a debilitating snag.

Most of the time, it’s money.

He’s got great ideas but nary a penny to his name. That’s why I told him to ring up old Uncle Sam… collect. Washington’s handing out all sorts of dollars these days. He might as well put his hand under the waterfall.

According to the Wall Street Journal, the Department of Energy is handing out some $40 billion just to the so-called “clean energy” sector. Greg needs to paint a tree on his latest invention, call it organic and break into 21st century politics, er, business.

From here on out, it’s not what you know, it’s who you know. With Obama acting as economic maestro-in-chief, it’s a whole new world for us business folks.

Which brings me to a sore subject. You see, I recently told Hot Stock Confidential members to buy shares of a tiny little up-and-comer named Raser Technologies (NYSE:RZ).

Now, before I go any further, I don’t want to hear any complaining that I only talk about my winning plays in Notes, because this one was a loser. A big fat flop. Right now, we’re down 45%. It was one, if not the worst recommendations I made this year.

But I’m not selling. Even though I got plenty of heat from internal and external “forces,” I am still not ready to suck it in and lock in the loss.

I’m not holding out because the company’s got a breakthrough product or is about to get bought out. I’m holding on because Uncle Sam is ready to cut Raser a big ole’ check.

When I initially recommended the company in late August, headlines were abuzz with “green” spending. But then, just as suddenly as it started, it stopped. Congress switched gears to healthcare and Raser shareholders were left in the dust.

But Washington never stays in one place too long. It makes for an easy target. So once again, the clean energy industry is heating up. The article in today’s Journal proves it.

With Stimulus 2.0 ready to be released and the DOE spending like an eighteen-year-old who just unlocked his trust fund, this is a fantastic time for Raser and its geothermal electricity production.

After all, just last week it announced it was applying for a Treasury Department grant that could put $33 million into the company’s coffer.

For a firm with a market value of just $90 million, $30 million can do great things.

This play may not have followed a traditional route and is certainly a move that would make any financial advisor soil his suit, but in today’s financial environment, when the government acts as the lender of choice, traditional rules are out the window.

While fundamental investments still have long-term merits, for us short-term traders and especially us contrarians, some of the best investment opportunities can be uncovered by following the White House press pool.

*** Speaking of money, how about Exxon’s big deal today? For us contrarians, the $31 billion, all-stock deal proves the world’s largest oil producer believes its stock is overpriced and ready to fall.

If you’ve read my work for any length of time, you likely know that I am a big fan of signaling theory. According to the common-sense notion, Exxon’s unwillingness to use any of its massive pile of cash is a sign that company executives feel a $69 share of the company is worth less than $69 in cash.

It is no wonder we are watching shares drop by more than 4.7% today. In the long run, today’s news will boost Exxon’s performance. But in the short term, investors have an awful lot to think about.

By far, the biggest news surrounding this story is not what it will do for Exxon or XTO shareholders, but what it will do to the natural gas market.

It’s exciting stuff, especially for those of us that just racked up triple-digit gains thanks to the industry’s recent meanderings. I’m talking to you TFN Strategic Trader members.

Here’s what I wrote for the TFN site today:

“You don’t become one of the world’s largest and most profitable companies by making dumb moves. Exxon Mobil (NYSE:XOM) proves it once again.

“The Street is buzzing today thanks to news that Exxon is printing some $31 billion worth of new shares in order to purchase XTO Energy (NYSE:XTO), one of the nation’s natural gas producing giants. It’s a major deal that has hearts skipping across a variety of sectors.

“Of course, nobody is as excited as XTO shareholders. They woke up to news of a buyout worth a 17% premium to Friday’s closing price.

“Shares of the oil and gas producer slipped by double-digit proportions over the past few months as natural gas prices slide. But now that demand is rising and gas prices are following suit, Exxon officials saw it was time to make their move. With XTO prices reaching short-term lows, Exxon made its move.

“Now that a major non-conventional gas player is making headlines, investors have their eyes on all sorts of potential buyouts. It’s almost impossible to find a company in the energy industry not trading in higher territory today.

“Two stocks you will hear a lot about over the next couple of weeks are Chesapeake Energy (NYSE:CHK) and Range Resources (NYSE:RRC).

“So far today, Chesapeake is up by over 6%, with shares trading close to $25.50 each. The company, with major holdings in all of the popular shale regions, has been a long-term target of buyout rumors. Maybe this time the speculators will be right.

“But my money is on Range Resources. It is a major player in the Marcellus region that just happened to announce significant expansion in the area this morning. Coincidence? Doubt it. It looks more like advertising.

“Range is the right size for a buyout. With a current market value of $7 billion and another $3 billion or so in debt, a buyout could come with a price tag of just over a third of Exxon’s purchase. Whoever decides to grab the company (think Shell or BP) would automatically get more than 180 Mmcf of daily gas production out of the Marcellus region.

“Of course, this is a long-term play. With gas prices plunging to ultra-low territory in recent months, any company purchasing gas assets now has a long-term outlook. With non-conventional plays hotter than a barroom pistol, major producers like Exxon are flocking to the sector in hopes of finding larger profits than their current low-margin deepwater prospects.

“For all of you fans of deepwater drilling, that is bad news, even horrid.”

Read why here.

*** Hey, lookie there. Gold’s up today. With word that Congress is ready to budget yet another couple trillion bucks, the dollar’s a tad bit weaker today.

As I write, gold is up by $3.70 per ounce and the dollar’s down just $0.0019 against the euro. Doesn’t look like buyers of either asset have much conviction.

Today’s just a short-term turnaround in the recent trend. Expect more strength from the greenback and more weakness from the gold market. By the time we sing Auld Lang Syne in a couple of weeks, gold will be trading for $1050 per ounce. That’s when you should be a buyer again.

But coal stocks, on the other hand, continue to appreciate in value. That’s why I feel that every Taipan reader (like you) needs to own some upside exposure to the coal sector. Today’s Chart of the Day offers you a look at one stock pick.

According to the U.S. Department of Energy, China and India will account for 70% of the world’s coal consumption increases over the next two decades, and this demand is not about to stop anytime soon. Roughly 66% of the world’s coal is used to fuel electrical plants, and the remainder goes into steel and concrete production.

That makes coal a global play on energy and infrastructure.

That’s why I like Fording Canadian Coal Trust (FDG:NYSE). It’s enjoyed current coal contract rates running as high as $275 per ton — compared to the $93 per ton it charged in 2007. This incredible year-over-year coal price increase makes it easy to predict that shares of FDG will hit $100 by Q4 of 2008.

Bryan Bottarelli, Bottarelli Research

Source: Weak Markets? Not for Coal Stocks 

Which is bad news for the American people… but great news for our food investments… here’s why…

We should not burn food – it’s that simple…

Whilst Europe has come to the realisation that ethanol is a big fat waste of time… the US are pressing on regardless.

The Department of Energy confirmed this last night… and it’s all down to “Homeland Security”.

The US government has revealed that ethanol usage and energy efficiency had cut the country’s total share of its oil imports for the first time since 1977. (Note that’s not total imports by volume, it is the proportion of oil used that is imported).

It also said that the US’s foreign oil dependency was expected to fall from 60% today to 50% in 2015, before rising again slightly to 54% in 2030.

US oil imports made up 57.9% of demand in the first quarter, compared with 58.2% in the equivalent period last year. The Department of Energy said:

“The 1970s is the last time we saw any significant decline in net import dependency in the US. It shows that markets do work, policy changes do work, technology does work.” Energy security is a big theme in the US – and I reckon that this data will make it much more difficult to reduce biofuels subsidies. In fact, it is now easier to argue in the US that those seeking a cut in ethanol subsidies are acting in an unpatriotic manner.

This is bad news for food prices… but good for our investment in food.

Food price will stay high…

Whilst not specifically mentioning biofuels, the World Bank warned today that prices of food will stay high in the next two to three years.

“This is not a short-term phenomenon. We need to work on a new deal for food policy in order to address the short-term need while keeping in mind that it is going to take longer to alleviate the situation,” according to World Bank managing director Juan Jose Daboub.

The US remains in denial about its biofuels policy. Agriculture Secretary Ed Schafer said yesterday that the increased use of biofuels may have some small, short-term costs, but those do not outweigh the ultimate benefits of reducing the country’s dependence on oil.

The problem with this is that poorer people pay a higher proportion of their income on food and are therefore hurt more by rising food costs. These “small, short-term costs” mentioned by Schafer are significant and long-term in other parts of the world.

Subsidy is supposed to be a short-term solution to a problem. Its aim is to prevent any jarring of the economy. However, it’s going to take the US a very long-time to wean itself off imported oil – and the cost will be paid in rising food prices.

That’s why we’re in on an agricultural play that will take full advantage of this situation. This short term solution won’t be changing any time soon (now there’s an oxymoron for you) – and now is the perfect time to get in on this wave. Discover what this stock is right now…

Regards,

Garry White
Editor
Smart Commodities UK

Source: USA Prefers Driving To Eating

Now even Hugh Hefner is having trouble making money from his adult brand of publishing. His Playboy publishing and media empire posted a quarterly loss on weaker TV and publishing revenues reports Yahoo Finance. “The worse-than-expected results illustrate the trouble that Playboy and other publishers and television companies face as more people get their entertainment online, and often for free.”

And that’s the beauty of the ‘net for consumer. A lot of what you fancy with little of what you don’t i.e. paying for stuff. Not so great for the publishers who have been struggling to figure out how to make the internet pay. Expect to see a culling of national newspaper as they stop printing in the next few years and as for TV, well one glance at the schedules tells us the medium is beaten.

Returning for a moment to the subject of ballooning commodity prices… The week-end FT finds an indication of the increases in speculation – the futures market. Commodity futures have increased fivefold in the past three years says John Authors in the FT citing energy consultant, Philip Verleger.

Originally commodity futures were used as a hedging tool for producers against a change in prices, now they are considered an investment in their own right. And The Sunday Times’ David Smith notes “something odd” going on in the oil market following last week’s announcement of a large rise in crude stocks by the US Department of Energy. “Instead of falling, prices hit a new record.” A rampant bull on the charge..? Oil is down a little today to $125 against something unusual in recent times, a stronger dollar.

Continues below …

Recommended

Around $135 billion in oil is waiting to be shipped from a small African country.

A grossly undervalued company with a share price of just pennies has total control over it’s departure.

America and China will have to pay them some serious money before they let a single drop depart…

Own this company now before their share price reflects what they’re actually worth…

Click here to find out more

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street
Publications Ltd. Customer Services: 0207 633 3600.

And some news closer to home…

The damage caused by rampant commodity prices can be clearly seen in the latest government statistics. UK producer prices rose 7.5% year on year – their fastest pace since 1986. Comments Geoffrey Dicks, and economist with the Royal Bank of Scotland:

“There is a wall of costs out there waiting to dump on the U.K. consumer.”

Recent soundings of sentiment suggest consumers have a good idea of what’s coming. One such dumping looking to be coming soon are higher energy bills. They could rise as much as 46% this year reports The Telegraph.

As for the wider economy it will “skate close to recession” over the next 6-9 months says the British Chamber of Commerce in a new report. Quarterly growth will hover a little above 0% and if oil maintains its current elevated level expect 4% CPI inflation in the second half of the year. Against this backdrop, life doesn’t get any easier for Mervyn King and co trying to coax UK plc. back to at least trend growth with further cuts in interest rates.

More billions in bank losses, today… HSBC plc. revealed another $5bn in bad subprime debt and write downs to take its total losses up to $20bn (how they must rue buying US subprime lender Household International). The bank comments the US is likely to go into recession this year and doesn’t see a US housing market recovery until next year.

On the subject of house price crashes, research from Goldman Sachs finds this is the first suffered in the US since the 1970s based on their definition of a 15% fall in inflation-adjusted prices. During that period most other industrialised countries have suffered at least one and Canada, Finland, Germany, Italy, Japan, Korea Sweden

Switzerland and the UK have had two. Yes, there are still those of us around who remember the value of your home can fall as well as rise.

Finally, some news of our own. This week will be our last. The Daily Reckoning is closing on Saturday but dear readers will continue to hear from us on a daily basis as the Fleet Street Daily from next Monday.

Regards,

Rob Mackrill
The Daily Reckoning

Be the first to comment on this article! Now you can post your thoughts, reactions and views on the topics we talk about.
To comment, click here.

Today’s unsettled trading environment is not for the faint of heart, that’s for sure. This is no time to climb out too far on a limb – whether going long or short on the markets. That’s because we’ve seen our fair share of whipsaws lately – sharp moves in BOTH directions – often within days of each other.

But there’s one investment strategy that’s tailor-made for this kind of market: They’re called “pairs” trades.

In February, I wrote about just such a “hedged” profit opportunity in a pairs-trade between natural gas and crude oil. At the time, I was concerned about a potential correction in crude due to slowing growth. Now a correction may have started.

So rather than make an outright directional bet in energy markets, I saw an opportunity to profit from a spread trade instead.

The Double-Profit Play with Crude Oil’s Cousin

Specifically, I have been bullish on the price of natural gas, which is way undervalued relative to its cousin, crude oil. I pointed out that with easy-to-trade ETFs, it’s now possible to effortlessly go long natural gas (UNG) while shorting crude oil (USO) without ever trading a single futures contract.

In such a trade, it doesn’t really matter where the overall market goes. As long as the spread narrows between natural gas and oil, you’ll make money.

A similar opportunity is now in place between crude oil and its distillate offspring, gasoline.

If You Think Prices at the Pump are High Now…
Hold on to Your Wallet

Since June 1st last year, crude oil surged almost 58% higher in price. Over the same period however, the price of unleaded gasoline has only advanced about 19% (see graph above).

Now, I realize many of us are already suffering from sticker-shock at the pumps, so the last thing you want to hear about is higher gas prices. In fact, my soccer-team toting Ford Explorer now takes about 80 bucks per fill-up! I’d switch to a Honda, but I just can’t fit six 11-year-old soccer players in it – unless I strap a few to the roof.

Anyway, back to the spread-trade in gasoline and crude. Gasoline prices are spiraling to record highs already, but hang on to your wallets, because the indicators I watch suggest a gallon of unleaded may soon shoot even higher in price.

Here’s the thing: Prices at the pump usually climb as America enters its summer travel season, boosting demand for gasoline. Over the past five years, demand for unleaded has jumped on average 4% between April and July, according to a recent Bloomberg article.

Crude Oil and Gasoline Prices are Out-of-Whack

Right now, commodity traders should be bidding up the price of unleaded gasoline to match sky-rocketing crude oil, and in anticipation of seasonal trends kicking in. However, unleaded gasoline is actually dirt-cheap right now compared to crude.

In fact, Bloomberg points out that: “A barrel of wholesale gasoline fetched 50 cents less than crude oil” just two weeks ago! This marks only the fifth time in the past 20 years that refined gasoline sold at a lower price than crude, according to data from the New York Mercantile Exchange.

As seasonal trends begin to kick in (April is already here), we could see unleaded gas play catch up to crude in a very big way. In fact, research suggests that investors who sell crude oil to buy gasoline “may return about 20-percent by June” as the price difference between the two is bound to rise in favor of gasoline, according to Bloomberg.

Now Here’s A Handy Way to Play It…

Until recently, investors in unleaded gas had pretty much just one option: Open a commodity-futures trading account. But in February, the folks that came out with the first crude oil ETF (USO), and the first natural gas ETF (UNG), struck again: Now they’ve launched the U.S. Gasoline ETF (UGA). This fund tracks the price of unleaded gasoline, as measured by changes in futures contracts traded on NYMEX.

So it’s now possible for you to easily execute this particular “pairs” trade with ETFs in your standard brokerage account. And you can do it all in the same fund family – by shorting USO and going long UGA.

It looks to me like the “spread” is already narrowing between crude and unleaded as gasoline inventories melt away faster than the polar ice caps. With millions of Americans getting set to load up the family-truckster for summer vacation…I expect gasoline prices to move much higher and close the gap with crude oil.

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. Last week readers of my signature investment service, Market Shock Trader closed out a call option trade on the U.S. Natural Gas ETF (UNG) for gains of 159.7%. If you would like to access details of my NEXT energy sector options play, sign up for a risk-free trial of Market Shock Trader.