But they may be struggling in vain.

Since 1945, the party that has controlled the White House has lost an average of 16 House seats in the president’s first midterm election, according to the Cook Political Report, a nonpartisan publication in Washington. However, losses for the Democrats could be far steeper next year if they fail to put unemployed Americans back to work.

Then-U.S. President Bill Clinton and the Democrats lost 52 House seats in 1994.

“Unemployment is the leading economic indicator when it comes to politics,” Democratic pollster Peter Hart told The Wall Street Journal. “Anytime unemployment hits double digits, it’s hard to see the party in control having a good election year.”

Right now, polls are showing that the majority of Americans list jobs as their top concern. And rightfully so.

The economy unexpectedly shed 263,000 jobs last month as the jobless rate soared to a 26-year high of 9.8%.  And many economists expect the unemployment rate will reach 10% by the end of the year and peak at about 10.5% next summer.

Lawmakers are scrambling to staunch the bleeding, but that process has been made difficult by an escalating budget deficit.

The government ended its 2009 fiscal year in September with a total deficit of $1.4 trillion, the Congressional Budget Office (CBO) said. That equates to 9.9% of gross domestic product and is the largest deficit since 1945.

Government spending rose by 18% in the year, with the bailout of the financial industry, which alone required $245 billion. The spending increases and tax cuts included in the economic stimulus package approved in February added almost $200 billion to the 2009 deficit, the CBO said.

The Obama administration’s $787 billion stimulus plan, which was touted as a catalyst for job creation, has been criticized for its slow progress and ineffectiveness.

Only about a quarter of Obama’s stimulus, or $164 billion, has been paid out. About half, nearly $400 billion, will be paid out over the next 12 months in the build-up to mid-term elections, and the remainder will be disbursed in 2011.

In January, the administration claimed the stimulus package would keep unemployment below 8% and push it below 7% by the end of 2010 – a fact that has already been seized on by Republican opposition.

“We’ll continue to remind Democrats of their failed promises that led to what is now, at best, a jobless recovery,” said National Republican Congressional Committee (NRCC) spokesman Paul Lindsay told The Journal.

President Obama said in his Saturday radio address that he would “explore additional options to promote job creation.”

But with a growing perception that the stimulus has failed and a deepening concern about the nation’s snowballing deficit, the White House has bristled at talk of a second stimulus package.

“This is not a discussion of second fiscal stimulus,” Jen Psaki, the senior White House economic spokeswoman told the Financial Times. “The president and his economic team have continued to look at a wide number of policy options to create new jobs and ease the burden of those who cannot find employment but any notion that we are any farther along than preliminary discussions about new proposals is wildly inaccurate.”

In particular, the administration is hoping to extend such stimulus measures as the $8,000 tax credit for first-time homebuyers.

When it expires on Dec. 1, the homebuyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, Mark Zandi, chief economist at Moody’s Economy.com, told The New York Times. That’s roughly in line with estimates from the National Association of Realtors (NAR).

Zandi, who formerly advised Senator John McCain, recommends extending the credit through August 2010. Legislators are also considering extending the credit to current homeowners.

The administration may also consider expanding the federal transportation funding program, which comes up for renewal every six years. That 2003 program expired on Sept. 30 and is currently operating under a 30-day extension period.

Obama is also expected to push for an extension of the “Making Work Pay” middle class tax cut that accounted for about a third of the February stimulus.

Extending these programs could cost the government tens of billions of dollars in tax revenue.

For example, congressional analysts estimate the cost of the current homebuyer credit at about $1 billion a month. Expanding the credit through next August could cost as much as $30 billion, according to Moody’s Zandi.

That, in turn, could lead to another large run-up in the budget deficit, which in the last year was exacerbated by dwindling tax revenue. Individual income taxes, the biggest source of tax receipts, fell by 20%, and corporate income taxes dropped by 54%, the CBO said.

“There may not be anything we can do,” a Democratic Congressional leadership aide conceded to The Times. “Under any circumstances, it’s going to take a while for jobs to recover.”

Source: Can Democrats Anchor Unemployment Without Doing More Damage to the Deficit?

Our third President and signer of the Declaration of Independence, Thomas Jefferson, long ago stated …”Banking establishments are more dangerous than standing armies”.

He also declared …“If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless.”

Hello.

A second American Revolution is now at least as necessary as the first one was though few citizens have an overall understanding of the problems we face. Anything short of a complete house cleaning will be mostly a waste of time and effort. The elitist banking entities running and ruining this country must be shown the highway. Nothing less will suffice!

Who exactly am I talking about? The Federal Reserve is exhibit one. Their partners in financial crime like Goldman Sachs (NYSE:GS), JP Morgan Chase (NYSE:JPM), et al absolutely must be excised like the cancer they are.

“Tea Parties” are once again on the horizon. Lots of citizens are awakening and protesting. How keen is their focus going to be?

Those that put the preponderance of blame on President Obama, ex-President Bush, the Liberals, the Conservatives, the Trial lawyers, the unions or any other distraction will never accomplish anything worthwhile. The rot is deep, systemic and centered on money and the banking system.

Those that demonize Republicans and worship Democrats, or vice versa, have been suckered into a divide and conquer plan. My expectation is to never again vote for a Republican or a Democrat in their present form. The Demopublicans must go.

The Fed is a serial bubble blower. Their funny money products initially line the pockets of their cronies closest to the trough. From there it is directed towards distorting prices in stocks, real estate or the latest manipulated craze. Economies without foundation inevitably collapse. Our central planners need to take an indefinite overseas vacation.

America’s biggest exports over the last decade have been toxic and fraudulent financial products. The creators of this crap are the ones who have brought us to the present disaster – yet they remain in charge of sweeping changes designed to perpetuate their power and imprison us.

All of these Wall Street entities and the lackey politicians who support them must hit the road. Those behind the scenes pulling the strings have to be stripped of their illicit power.

Surely you heard about Goldman Sachs’ record second-quarter earnings of $3.44 billion? Making money hand over fist comes fairly easy when you get to implement official policy. Records follow when front running is the name of the game. They may get their bonuses now but ours will be even larger when tar and feathers once again hold sway.

Congressman Ron Paul has sponsored a bill to audit and put congressional oversight on the Federal Reserve. 261 representatives have so far signed on to this meaningful element of true change. A similar Senate bill is just getting started. Knowledgeable citizens seriously doubt the Fed could withstand an audit because of its shady dealings. This is one bill that holds some promise.

The huge majority of US citizens are really peeved, justifiably so. That anger will certainly play out in the coming months and years. The tea parties could even spill into the streets. You can rest well assured that nothing will be accomplished without a purposeful and focused anger.

Concerned Americans have a critical choice. We can rid the system of all the parasites and malignancies or just stay home and continue to get our reality through television.

You know by now I’m also going to advise you to protect yourself and those you care about. The monetary metals, gold and silver, sniff out economic, financial and monetary chaos. They’ve had a massive snort lately and more is coming. These precious metals have appreciated nicely almost every year of this decade for good reason. They should still be purchased and the speculators amongst you may consider my Resource Windfall Speculator for leveraged gains in the resource sector.

Live Free and Resourcefully,

Rusty

Source: You Say You Want a Revolution?

No matter how well an executive team manages their company, there is very little any of us can do to mitigate political risk. No matter what we do, if a runaway government wants to take our profits, there is nothing we can do to stop it.

But the political teeter-totter goes both ways. The government giveth and the government taketh. If they want to hand us profits, there is little we can do to stop it.

One company hoping the Obama administration will do more good than harm is MDU Resources Group (NYSE:MDU), a diversified natural-resource company based in Bismarck, North Dakota.

There is a reason this company has consistently outshined its competitors and has been named one of America’s 400 best big companies by Forbes. It is superbly managed by a team of fiscal conservatives that concentrate more on long-term goals than short-term earnings estimates.

MDU was recently named the country’s best-managed utility company. And it shows.

With a current ratio of 1.3 and nearly $800 million in operating cash flow, the company has more than enough financial strength to get it through the current economic mess. But like so many things, what happens next is up to the nation’s Investor in Chief.

When Obama signed an economic stimulus package worth nearly a trillion dollars into law, MDU shareholders were drooling at the possibilities.

Read the full article here at TFN: MDU Resources: The best utility of them all?

There’s always a bull market somewhere, the cliche goes. Today — and so far in 2009 — Shanghai’s been a surprisingly good spot to place your bets.

The Shanghai Composite climbed another 6% yesterday. Rumor has it the Chinese government is considering doubling its own economic “stimulus” package, from around $580 billion to $1 trillion… maybe more.

There are a couple data points being published lately that have traders excited. The Chinese purchasing managers’ index, for example, rose to 49 in February, just a hair short of the contraction/growth score of 50 and an improvement from November’s record-low score of 38.

The Chinese sovereign wealth fund has been pumping money into its biggest banks, too. And with the fall of financial giants here in the U.S., those Chinese banks are becoming, umn, relevant. Middle-class demand for goods and housing, while slowed, is still growing.

A record 20% of all U.S. residential mortgages were “underwater” in December. That means more than 8.3 million mortgages carried more debt than the value of the home they were borrowed against. The “sand states” — California, Nevada, Arizona and Florida — have it worst. For example, 50% of all Nevada mortgages were underwater in the last month of the year.

“The accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize,” said Mark Fleming, chief economist of First American CoreLogic, which published the survey. No word on what happens if they don’t.

Private American companies shed 697,000 jobs in February, ADP claims today. The payroll management company’s gauge of monthly employment registered 83,000 more schlubs kicked to the curb than the Street expected… and marks the 14th straight month of decline.

The Bureau of Labor Statistics (BLS) is expected to announce 650,000 job losses in February. If ADP’s report is any indicator (and that’s a big “if”), Friday’s BLS report will be worse than expected as well.

Regardless of the accuracy of either report, you can get a pretty fair look at the employment scene by charting both. Look very closely and you might spot a trend.

Even we’re getting bummed out by these numbers.

Doing its part, the U.S. auto industry had its worst month in 27 years during February. Sales crashed 41% year over year, to an annual pace of “just” 9.1 million. That’s the slowest pace since 1981… amazing, especially considering there were around 75 million fewer Americans back then.

A year ago, yearly sales exceeded 15 million cars and trucks.

Tired of driving their own hybrids to Washington, GM execs are now pleading with European governments for bailout bucks over the phone. The degenerates’ case: Without a multibillion-dollar boost, up to 300,000 Europeans will lose their jobs when GM’s EU plants run out of money. Hmmn… that sounds familiar, doesn’t it?

GM is asking Germany for $4 billion in exchange for partial ownership of European operations. The FT says the automaker is also in talks with the U.K., Spain and Poland. Just what the global economy needs, eh? A global shakedown.

The stock markets opened decidedly higher this morning. After stumbling to a small loss yesterday, the Dow popped up 100 points at the opening bell today… for… umm… no real reason at all. Other than this curious sound bite:

“What you’re now seeing is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal,” newly elected president turned financial adviser Barack Obama said yesterday, “if you’ve got a long-term perspective on it.”

Here’s a question: How many of the retiring baby boomers with gutted portfolios and bitch-slapped pension plans have a long-term perspective “on it”? Solid, like Barack.

“We are quite confident,” added Fed head Ben Bernanke yesterday before Congress, “that we can raise interest rates, reduce the money supply and do that all in a timely way to avoid any inflationary consequences.”

The chairman marched to Capitol Hill yesterday to defend his multitrillion-dollar campaign to save us from ourselves. He insisted that he “had no choice” but to bailout AIG, and soothed lawmakers with assurances like this: “If there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG.”

Grr…

And as the Fed chairman massaged Congress with one hand, the other quietly orchestrated the first day of the Term Asset-Backed Securities Loan Facility (TALF). (That sounds dirty, doesn’t it?)

Between his printed dollars and taxpayer dough lent from the Treasury, the program to rekindle student, auto, credit card and eventually mortgage loans will have a war chest exceeding $1 trillion.

“The question facing every investor today,” writes Eric Fry, “and the one that could wield a very large influence over one’s investment fortunes — is whether deflation or inflation will hold sway during the next couple of years.

“To preview our conclusions: We’re betting on inflation.

“No one knows, least of all Ben Bernanke or Timothy Geithner, if the Fed will conjure up one dollar too many. And no one knows if the Fed could ever coax its magical deflation-fighting dollars back into the cauldron, once their services were no longer needed.

“At least, in theory, no one knows…

“In reality, everyone knows: The excess dollars will never return to the cauldron. They will escape into the economy at large, where they will run rampant, and cause the price of eggs to increase to $10 a dozen…or $20…or maybe even $100…

“And what if inflation arrives much sooner than expected? What if the widely anticipated deflation never materializes? The holders of long-dated Treasuries would fare very, very poorly. And the nonbuyers of gold would be very chagrined, at best. So consider this two-part question:

“1) Is the 2.89% yield of a 10-year Treasury so thoroughly compelling that it justifies risking an enormous capital loss (if inflation appears sooner than expected)?

“2) Are commodity plays at their current depressed quotes so thoroughly risky investors should continue to shun them, no matter the price?”

Oil has snapped back $3, to $44 a barrel. Most of the buying support today comes from the Far East, as the latest momentum from China gives traders hope that the world’s second biggest user of the gooey black stuff is still guzzling away.

But gold isn’t getting any love today. The spot price fell another couple bucks overnight, now at $910 an ounce.

“The monetary and banking problems driving gold higher for months have not disappeared,” James Turk assures us. “They will remain for the foreseeable future because the imprudent lending by banks will take years to unravel, highlighting the essential need for a safe haven for one’s money.

“Gold is the safest of safe havens because it does not have counterparty risk. Gold also preserves purchasing power, which is an attribute that will become increasingly important in the months ahead as all the new money being printed by central banks around the world takes its inflationary toll.

“Gold has not yet made a new record high in U.S. dollars, but I expect one soon.”

After hitting a fresh three-year high yesterday, the dollar index is still holding strong today. It scores just under 89.

“I get asked all the time,” notes EverBank’s Chuck Butler, “how long will this dollar strength last. I said some time ago that I believed that by late summer/early spring, the credit markets might be showing signs of unlocking, and that could bring the risk takers back out from under their respective rocks, and that a return to the fundamentals would bring about an end to the dollar strength. The end of July marks one year of dollar strength, when the you-know-what hit the fan with subprime loans and this whole lockdown of credit and liquidity caused a huge deleveraging in the markets.

“While I still believe this thought has merit, I also have to figure in the fact that the previous stimulus plans didn’t work, the money was wasted on Wall Street buddies and cronies… And now we need another one, but only this new one is centered on the wrong things. So I’ll be watching for signs. If none appears, then I’ll have to go back to the drawing board.

“So in an environment when ‘bad news’ rewards the dollar… and the bad news just keeps coming along, that’s not a good sign for a reversal of dollar strength right now. When what used to be called 100-year events now happen almost weekly.”

“The reader commenting that the best thing for China, et al., to do,” writes our first reader today, “would be to cut Americans off from funding and provide tough love may be missing a big implication. If an unreformed alcoholic is TOLD to stop drinking and his bottle is forcibly removed, do they graciously thank you or come up swinging?

“I believe that if America had its funding removed, we would be fighting World War III within weeks. Ever better to maintain the facade BUT take advantage of opportunities within the charade.”

“If I have time to read only one of the many, many e-letters that I get daily,” writes another reader, ”The 5 is that one. Keep up the great work!”

“Many thanks for continuing the best daily read around anywhere,” says a third.

And a fourth: “You guys are the best…love your timely and wisdom-filled 5 Min. letter.”

“Thank you!” writes a fifth. “Your ongoing thoughts on the markets are ALL excellent, even the ones I don’t agree with. Your thoughts make me think, and sometimes differently to my original thoughts.”

The 5: Thank you! You’ve always been gracious to The 5, but lately, we’ve been getting an awful lot of one-line thank you notes. We’re starting to get suspicious. How about some criticism? If there’s anything you think we’ve been missing or would like to see more of in our daily digest, by all means… let us have it: 5minforecast@agorafinancial.com

And seriously, thanks for reading. It’s our pleasure.

China Bucks the Trend, GM Goes to Europe, Inflation Prediction, Jobs and More!

Surprisingly, two key ingredients of this turnaround formula will be structured investments, such as asset-backed securities, and leverage – the combination and poorly policed use of which acted as the accelerants that helped fuel the financial inferno that’s now sweeping the globe in wildfire fashion.

But the reality is that new U.S. Treasury Secretary Timothy F. Geithner probably realizes that he has little choice.

Nevertheless, there are problems throughout this plan, says Shah Gilani, a retired hedge fund manager and credit-crisis expert who is a contributing editor to Money Morning.

“Maybe I don’t get it because I’m not on the inside of the new Treasury fire-fighting team,” Gilani said. “But it strikes me that the part of the proposed plan to stimulate consumer loan growth by courting opaque hedge funds with an offer to lend them as much as $95 for every $5 they put up, at a giveaway interest rate, so they can buy new security pools of already overly leveraged consumers’ additional borrowing obligations, is like trying to put out a fire with gasoline.”

As Democrats and Republicans continue to tussle in Congress over a controversial economic-stimulus package worth an estimated $825 billion, Geithner will today (Tuesday) formally unveil a financial-markets rescue plan that’s going to be heavily reliant on private investors buying the “compromised” debt-backed securities that are clogging bank balance sheets like “plaque” clogs the arteries of a heart patient.

The plan Geithner is scheduled to outline represents a revamped approach to the $700 billion Troubled Assets Relief Program (TARP) announced by the Bush administration and then approved by Congress last fall. About half the money has been spent in that program, which was initially designed as a way for the government to buy troubled bank assets, but which ended up with the federal government taking direct stakes in the banks themselves.

TARP has been heavily criticized for its lack of accountability and lack of controls. As the ongoing Money Morning investigation has demonstrated, banks have used the money for everything from buying other banks to paying out bonuses – although they often refuse to admit it.

While most investors will refer to today’s proposal as another “banking bailout plan,” the reality is that fixing the banks is the end game, and not the actual strategy. The misconception is easy to understand; after all, most investors believe the credit crisis is due chiefly to a decline in lending, the truth is that this lack of liquidity is due to a decline in “securitization” – the process under which loans made on Main Street are bundled together and repackaged on Wall Street and then resold to investors worldwide as highly rated bonds.

Geithner, in a speech last year when he was still serving as the president of the New York Federal Reserve Bank, said the total value of assets in the “shadow financial system” – a system consisting of hedge funds, investment banks and financial “conduits” such as “structured investment vehicles” (SIVs) – outstripped the those in the traditional banking system as early as 2007.

That’s no surprise: Just one year before that (2006), securitization was for the first time responsible for more than twice the volume of loans being made by regular lenders, Mark Sunshine, the president of middle-market lender First Capital in Boca Raton, told Fortune.

Through securitization, a lot more credit could be created than when banks just originated loans and then held them on their balance sheets. This new reality substantially boosted the “velocity” of lending and credit growth, and provided much of the financing consumers needed to buy cars, houses and other wares.

Then came the subprime-mortgage debacle, which caused a shutdown of the shadow financial system and a virtual halt to lending.

According to First Capital’s Sunshine, between the first quarter of 2007 and the third quarter of 2008, bond issuance fell 93% in asset-backed markets, 73% in corporate-debt markets and 47% in mortgage-related areas. And without those asset-backed bonds being issued, lending dried up.

Bond issuance has “just fallen off the cliff,” Sunshine told Fortune. “The reality is that the banks don’t have the infrastructure or the capital to lend in the kind of volume to make up for the collapse of the credit markets.”

Though the problem is fairly clear, there’s no single obvious fix. When he makes his speech to unveil the latest bailout initiative today, Treasury Secretary Geithner is expected to announce a multi-pronged effort – including government guarantees of losses on some assets and greater assistance for troubled homeowners.

With Congress already angry about how much is being spent on rescue programs, Geithner must find a way to make the needed fixes, while keeping the final price tag as low as possible.

“We want to get the private sector to take responsibility for a situation that in many ways was created in the private sector,” Lawrence H. “Larry” Summers, a top economic aide to President Obama, told CNN yesterday (Monday). “If the government is going to be putting money at risk, we want to make sure somebody in the private sector is willing to take the same risk the taxpayers are being asked to take.”

Thus, to get the “shadow financial system” re-started, Obama administration insiders had to think creatively, and possibly accept a higher level of risk than taxpayers might realize or be comfortable with. That includes attracting private-sector investments – no easy task, given that the securitization market is still frozen, U.S. unemployment is soaring, and the American housing market remains in a free-fall.

“The administration is having to juggle three different chain saws,” Brian Olasov, a managing director at the Atlanta office of law firm of McKenna Long & Aldridge LLP, told Reuters. “The key question is, does the plan make it attractive for the private sector to participate?”

Geithner must generate support for a greater flow of investor funds into key areas such as the markets for mortgage-backed securities, auto loans and asset-backed bonds, Reuters said.

Olasov says plans like the U.S. Federal Reserve’s Term Asset-Backed Lending Facility, or TALF, hold great promise for jump-starting private credit flows. Under the TALF program, buyers of “AAA-rated” securities backed by credit cards, student loans and other assets can swap those bonds for U.S. Treasury securities that they can use to get new financing.
In The Fed created TALF as a $200 billion program back in November, but never deployed it, for it was too complicated to roll out that quickly.

Already, however, federal officials are considering expanding the types of securities eligible for the TALF, as well as related plans to include residential and commercial mortgage securities. That’s creating some real concern about the level of risk the federal government may be taking on, especially since the potential exists for private-sector investors to “game” – manipulate – the financial system, if the guidelines aren’t strict or specific enough, some experts worry.

Under the $200 billion TALF program, the central bank will loan money to virtually any U.S. firm that’s willing to use this government financing to buy securities that are tied to  auto, credit-card, small-business or student loans, The Wall Street Journal reported.

In other words, since the government doesn’t want to buy these securities itself, it is lending money to make it possible for professional investors to buy the securities – and in some cases is even guaranteeing payment on the loans that back these securities in order to make this happen.

Some hedge funds – the shadow-financial-system players that borrowed money to boost returns for clients – are “are lining up to get in on the Fed program, seeing a chance to make high double-digit-percentage returns with little downside using low-cost loans made on easy terms,” The Journal reported. Some Fed officials are admittedly nervous about relying on unregulated and often opaque hedge funds, but see the arrangement as a necessary trade-off to increase the velocity of lending and utlimately get capital into the hands of consumers.

“This is exactly what the financial system needs,” Andrew Feldstein, chief executive officer of Blue Mountain Capital Management LLC, a multibillion-dollar hedge fund that is gearing up to participate in the Fed program, told The Journal. “Sending help through the banking system is like sending an ambulance through a traffic jam.”

Others see big risks, however, since the program essentially combines the very same elements that led to the financial crisis in the fist place – leverage, asset-based securities, and questionable credit ratings on debt.

“Between setting up an aggregator bank to buy toxic assets that still no one has any idea how to value and setting up “foxy” hedge funds with their own henhouse of government-backed consumer-weary loan pools, it’s probable that the Treasury will succeed in bringing in private capital,” Money Morning’s Gilani said. “It’s just too bad that if the scheme actually works, it will be the rich-money hedge funds that win and if it doesn’t work, it will be poorer U.S. taxpayers that get their necks rung.”

Source: Obama Administration Must Revive “Shadow Financial System” to Revive U.S. Banks

Editors Note: This is the eighth installment of an investigative series in which Money Morning examines how U.S. banks are using federal bailout funds.

This from Money Mornings Peter Krauth:

There’s an epic confrontation brewing inside the new administration of U.S. President Barack Obama. And it has nothing to do with the controversial economic stimulus package, or the new banking-bailout blueprint that U.S. Treasury Secretary Timothy F. Geithner is expected to unveil today (Tuesday).

This “other” confrontation has to do with energy. And the two sides are very clearly delineated.

On the left is renewable energy. On the right: Secure access to oil.

Upping the ante in this already monumental debate is the huge decline in the stock and commodities markets – a skid that’s firmly etched in investors’ minds. Here’s why.

Anyone who followed the Obama campaign remembers his pledges to ensure forceful action aimed at reducing greenhouse gas emissions by raising energy efficiency, increasing the use of “greener” energy sources, and rolling out emissions standards that would apply across the nation.

And only a couple of weeks ago, as we sat fixated on his inaugural speech, the new president reminded us of the need to harness the power of wind and sun to safeguard the environment.

But he also unmistakably reaffirmed the importance of energy security to America.

So, in building his cabinet, President Obama has positioned some heavyweights to back up his words, on both sides of the debate.

The Dilemma

How will these seasoned veterans, as they set out to accomplish their own objectives, reshape the future of energy policy?

Well, one sure bet is to expect a regular stream of abundant pressure from the environmentalists. They will be eager to legislate new standards for greenhouse gas emissions, and they’ll appeal to the president’s stated goals of shifting energy use toward environmentally friendlier technologies.

But achieving a “greener environment” brings new costs, such as cap-and-trade schemes, carbon taxes and maybe even new gasoline taxes.

Yet right now, America is contending with the rawest of nerve endings in the form of a highly frail economy that is “teetering on the brink” of an even deeper downturn than we’re already ensconced in, thanks to escalating job losses and a massive credit drought.

So it’s naïve to think these factors won’t influence policy, at least in the near-to-medium term.

And, to add to the mix, we have to factor in a vital American concern: The U.S. economy would seize up like the Tin Woodsman in a monsoon without the continued supply of foreign oil.

The Team

Defending the “environmental camp” are Carol Browner, Lisa Jackson and Stephen Chu.

Browner, the former Environmental Protection Agency (EPA) administrator, is now adviser for energy and climate change.  Jackson, who spent 15 years with the EPA and most recently served as New Jersey’s environmental protection commissioner, will replace Browner as the new EPA administrator. And Chu, a Nobel Prize-winning physicist and vocal advocate of national-emissions caps, is now the U.S. energy secretary.

In the “secure energy” camp are Gen. James L. Jones and Hillary R. Clinton.

Gen. Jones is Obama’s new national security advisor. He is retired from the U.S. Marine Corps and was once the NATO supreme commander. Those who know him say he’s well respected (read tough) and fair, with the ability to assess a variety of options, no matter their source.

Probably the most prominent face on the team is that of Clinton, the new secretary of state. As most of us know, Clinton is an experienced politician, and is likely to wield considerable influence that we shouldn’t underestimate.

What’s Next?

So who will win out? And more importantly, how should you position your portfolio to benefit?
Obama will work hard to seek common ground. But I expect that the pressures of an economy on life support will prevail over the next 12-18 months.

Of the $850 billion stimulus package, a good portion is sure to find its way into green energy, but will only get spent by late 2010.  In the meantime, it will be too risky to cripple the economy further with additional tax burdens and higher costs.

In that case, you can look for the new president to enact legislation that is beneficial to the environment, but will only take effect within about two years.

That gives the economy a reprieve, and also allows the demand and price of oil to climb back toward the $70 to $80 a barrel, a level that would allow costlier oil production to turn a reasonable profit.

From an investment standpoint, then, a higher price, and a secure source of oil from U.S. neighbors, means the Canadian oil sands, natural gas, and conventional oil producers should be on your radar, experts agree.

What The Players Are Saying

Both Gen. Jones and Secretary of State Clinton recognize Canada as a stable and abundant source of oil.  That’s logical in my view, as Canada’s oil reserves are second only to those of Saudi Arabia.

[Editor's Note: By the way - and this is a point that both Money Morning Investment Director Keith Fitz-Gerald and investing icon Jim Rogers have repeatedly made - no independent source has been allowed to verify the Saudi numbers.]

And as it turns out, Gen. Jones is a staunch supporter of Canada and its oil sands.

As chairman of the Institute for 21st Century Energy, Gen. Jones has delivered a number of defining speeches in which he highlighted energy security as a top priority for America’s safety.

And the Institute supports both Canada and Mexico as strategic sources of oil as America tries to wean itself from the oil of “less stable” nations.  What’s more, 21st Century cautions that imposing costly climate change legislation could cause the already foundering U.S. economy to fail.

So while Canada and the United States have longed enjoyed a rather close relationship (usually friendly, though at times antagonistic), I do expect it will become more intense.  Scores of issues, including NATO, the Northwest Passage, harmonized emissions standards, and energy security will take center stage.
None of this has been lost on the new secretary of state either.

In her senate confirmation hearing, Secretary of State Clinton thought it vital to mention that “in our efforts to return to economic growth here in the United States, we have an especially critical need to work more closely with Canada, our largest trading partner, and Mexico, our third-largest. Canada and Mexico are also our biggest suppliers of imported energy.”

And just running my quick Google search also reveals that, according to the Energy Information Administration, Canada (in top spot) supplies nearly 50% more oil to the United States than does Saudi Arabia (in 2nd spot).  And Mexico’s (3rd spot) level of oil exports to the United States are shrinking, as its main oil field, the Cantarell Complex, has peaked, and now depletes around 15% per year.

Facts are facts, and President Obama knows that a healthy U.S. economy needs Canada’s secure oil.  Investing in alternative energies is the right action to take, but the costs are high, and the output and payoff are years away.

Early this year, President Obama will go to Canada on his first official foreign visit.  And Canadian Prime Minister Stephen J. Harper is likely to remind the new president of an important statistic:  Alberta’s oil sands already export 500,000 barrels of secure oil to the United States every day.

How To Play This Trend for Maximum Output

Two of the biggest names in Canadian oil should benefit as this scenario plays out. They are Suncor Energy Inc. (SU) and EnCana Corp. (ECA).

Suncor is an integrated energy company, and one of the largest oil sands companies around.  This is no junior explorer.  It produces 220,000 barrels of oil equivalent per day (BOE/D).  And the company is currently tremendously undervalued.

They have ambitious plans to expand as well, to 550,000 (BOE/D) by 2012. Current oil prices would not justify the investment, but that’s if you think oil’s staying at $40, which I don’t.  Refining and marketing are also significant to Suncor’s business.  The company’s 160,000 (BOE/D) refining capacity provides a higher value with respect to its oil sands assets.

Downstream, Suncor also owns 300 Sunoco gas stations in Canada, 44 Phillips stations in Colorado, and offers diesel fuel to corporate clients directly from its Canadian terminals.  All of this ensures direct access to customers for the company’s end products, which protects cash flow under tight credit conditions.

In order to process all that tar sand into oil, Suncor needs plenty of natural gas.  And it’s established a significant collection of natural gas projects that are able to amply supply its internal production, while generating excess to sell into the market. This internal natural gas asset bodes well for the company’s self-reliance, as well as its investment attractiveness.

And interestingly enough, Suncor has forayed into alternative energies, as well.  The company has four wind farms in Ontario, Alberta and Saskatchewan, and runs the largest ethanol facility north of the U.S. border.

Both of these “green” energy projects help provide two vital benefits:

• Diversification.
• And carbon credits.

Should a cap-and-trade scheme eventually be implemented, these credits would help offset current production emissions.

Suncor needs $49 a barrel oil to break even. So unless you think that we’re going to remain at or below that level for an extended period, you’ll want to own this company for the long term.

The aforementioned EnCana is another leading oil-and gas-producer in North America, with 100% of its production and reserves on this continent. Natural gas production is in the neighborhood of 2.2 billion cubic feet per day, and oil and natural gas liquids are about 120,000 barrels per day, with about 50,000 of that from oil sands.

Together with ConocoPhillips (COP), EnCana has formed an integrated North American heavy oil business.  EnCana’s contributions to this 50/50 venture are two oil sands projects with 6.5 billion barrels of recoverable resources. Conoco’s contributions are Illinois and Texas based refineries with heavy oil processing facilities.

About 80% of EnCana’s current production is in natural gas, which is interesting for two reasons:

• First, natural gas was recently trading at roughly $4.50 per thousand cubic feet (Mcf), yet the company has hedged its production through October ‘09 at $9.15 Mcf, allowing for considerable profit protection.
• Secondly, natural gas is likely to be favored by the new Obama administration – especially for power generation, since it burns much more cleanly than coal.

For the investor seeking an energy play, EnCana is also a more conservative pick than Suncor, due to its higher relative natural gas revenue, its venture with ConocoPhillips, and more diversified sources of income.

And recently, Innovest Strategic Value Advisors (a New York based research firm) included EnCana in its Top 100 list of most sustainable large companies in the world, citing EnCana’s above-average investments in renewable energy.

Yes, it’s true that oil sands production brings about higher greenhouse-gas emissions.  But oil-sands producers are aware of this.  The province of Alberta will spend $2 billion to develop new methodologies to sequester large amounts of carbon dioxide underground to negate these unwanted effects.

So when you boil things down, Canada is far and away the largest, nearest, most reliable source of friendly oil for the United States.  And until the U.S. economy recovers during the next year or more, transforming “green” energy into “affordable” energy will remain more of a challenge than a reality.

Source: Two Ways to Profit From the Obama Administration’s Energy Dilemma

Oil climbed towards $42 a barrel on Monday after OPEC said it was willing to cut oil output further if needed to stabilise oil prices.

The market was also supported by a giant U.S. economic stimulus package that the administration of U.S. President Barack Obama is expected to get through Congress this week.

U.S. crude for March delivery rose $1.67 cents to $41.84 a barrel by 1448 GMT. London Brent climbed $1.45 cents to $47.66.

“If we think we still need more action, I’m sure the conference will take more action to stabilise the market,” the secretary-general of the Organization of Petroleum Exporting Countries, Abdullah al-Badri, told reporters in London. He was referring to OPEC’s supply policy meeting on March 15 in Vienna.

Badri also said the 12-member group appeared to be implementing promises of production cuts more thoroughly than expected by some in the oil market with 80 percent compliance.

OPEC has said it will cut oil supply by 4.2 million barrels per day (bpd) from its level of production in September in an attempt to bolster oil prices that have fallen from a record high of almost $150 a barrel last July.

Harry Tchilinguirian, oil analyst at BNP Paribas in London, said the market was also looking ahead to the passage this week of a massive economic stimulus package to try to revive the U.S. economy.

STIMULUS

“The stimulus package is a supportive structural factor,” he said. “It should begin to have an impact on the economy in the second half of this year and is an underlying element conditioning sentiment.”

Top aides to President Obama on Sunday urged Democratic and Republican lawmakers to set aside political differences and quickly approve the stimulus package this week, as the world’s largest economy suffers from the worst financial crisis in 70 years.

Later on Monday, the Democratic-led Senate, with the help of a handful of Republicans, was due to vote to end debate on the $827 billion plan to clear the way for its passage on Tuesday.

Oil prices fell on Friday after news of steep job cuts in the United States, where nearly 600,000 jobs were slashed last month, the most severe cut since December 1974 prompting worries of still weaker demand in the world’s biggest oil consumer.

The financial malaise, which first sprang from home loan defaults in the United States, has swiftly spread to Europe and Asia, pushing a string of industrialised nations into recession.

Renewed violence in Nigeria also helped buoy oil prices. Nigerian militants attacked a gas plant operated by Royal Dutch Shell in the Niger Delta on Saturday and warned of more attacks to come, but the army said it had repelled the raid and killed three gunmen.

LONDON, Feb 9 (Reuters)

The fresh numbers reinforce our position that investors should look elsewhere in Asia for longer term profit opportunities.

Beijing said that approximately 20 million migrant workers have lost their jobs in China due to the economic downturn. The loss of jobs has prompted 15.3% of workforce in China’s new cities to return home – abandoning the modern urban centers that have come to represent China’s ballyhooed economic miracle.

This new survey was conducted before the Lunar New Year holiday which was celebrated in the last week of January, a holiday during which people returned home. The exodus was caused by a wave of factory closures as exports plunged in the wake of the current global recession.

Beijing admitted that 2009 could be the “toughest year” since the turn of the century for development of the countryside, which has fallen behind as Chinese economic reforms focus on cities.

Despite the gloomy news, the benchmark Shanghai Composite Index gained 9.3% in January 2009 as investors responded favorably to China’s massive economic stimulus package. Still, investors would be wise to consider other regions in Asia for faster gains than mainland China.

Liu Jiwei, an analyst from Pacific Securities, forecast that the growth rate of corporate earnings in China will decline to minus 10% in 2009 from a growth rate of 3% in 2008.”

Overall, 2009 is shaping up as a terrible year for investors with holdings in China.

We recently recommended that investors explore other regions in Asia that have investment potential. The key is to find countries that have cheaper factory labor than China.

We cited South Asia, which includes India, Pakistan and Bangladesh. In addition, parts of Southeast Asia (Cambodia, Laos, Myanmar, Thailand, Vietnam and Malaysia).

The rise of workers rights, coupled with last year’s dramatic inflation, has tarnished China’s reputation as the low-cost provider of manufactured goods. In turn, companies from Asia and industrialized nations are moving to cheaper alternatives such as South and Southeast Asia. In this case, investors would be prudent to follow the money.

U.S. stock index futures fell on Thursday, pressured by a weak earnings season and worries that the $825 billion economic stimulus package could still face a bumpy road.

Shares of widely held Dow component Exxon Mobil were down 2.1 percent at $77.55 before the opening bell after Goldman Sachs removed the company from its Americas Buy list, saying it saw better investment opportunities among energy companies.

The U.S. House of Representatives passed President Barack Obama’s stimulus package late on Wednesday but despite the new president’s goal of bipartisanship, every Republican who voted opposed the bill. The Senate begins debate next week.

“It’s clear the Republicans don’t want to play ball with the Democrats, they want to do it their way,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“Any slowdown in the stimulus package is not going to be good. The market wants to see this passed, done, signed, in the bank and let’s move on to the next problem.

Investors were also watching for initial weekly jobless claims, due at 8.30 a.m. (1330 GMT). Worries over mounting job losses have been in the forefront this week as more companies have announced massive cuts as they attempt to stay afloat.

S&P 500 futures fell 9.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures were down 79 points, and Nasdaq 100 futures lost 4.75 points.

A gain in Ford Motor Co helped futures trim losses after the ailing automaker posted a loss but saw a lower cash burn rate than expected and reaffirmed it plans to go ahead without government loans. Ford was up 6.9 percent at $2.17.

Starbucks Corp (SBUX) was the latest company to say it will slash jobs when it reported lower quarterly profit after the bell on Wednesday as sales fell globally. The coffee chain’s shares were down 3.6 percent at $9.30.

Stocks rose on Wednesday as financial stocks soared on optimism the Obama administration was making progress on a plan to relieve banks of money-losing assets.

The Wall Street Journal reported on Thursday that government officials looking to revamp the financial bailout have discussed spending another $1 trillion to $2 trillion.

With Wednesday’s advance, the benchmark S&P 500 capped its fourth straight day of gains, its longest run-up in two months. Year to date, the benchmark S&P 500 is down 3.2 percent, a marked improvement from a 6.4 percent loss seen at Tuesday’s close. After starting 2009 up more than 20 percent from its Nov. 21 bear market low, the S&P is up 16.2 percent from that significant low.

NEW YORK, Jan 29 (Reuters)