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…

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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

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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.