The gap between the crude and natural gas markets continues to expand. The world is concerned with having too little of the former and too much of the latter.

As I write, front-month natural gas futures are selling at a level we have not seen since August of 2002 (when the equities market was claiming a low of its own), just $2.93 per million BTUs.

The contract price has fallen by more than 6% during today’s session.

It is certainly not good news for domestic companies that worked overtime to expand their drilling range during the bullish run we saw over the past several years.

Pennsylvania, West Virginia, Ohio and New York all saw companies like Chesapeake Energy (NYSE:CHK) and Andarko (NYSE:APC) knocking on the door of property owners, willing to sign big checks to get their hands on mineral rights.

But now that the nation’s economy has ground to a halt and gas prices have fallen off a cliff, producers are wondering what in the world they were thinking. All they can do is shut down the drills and close the valves.

The further natural gas futures fall, the more output will be stricken from the market. It is a race to see which side of the equation can reach equilibrium first.

The tide is turning

If you have been following this site throughout the summer, you know I have remained bullish on natural gas. And if you are a TFN Strategic Trader subscriber, you know I have made several recommendations in kind.

Judging by today’s headlines, I am not alone.

According to the Financial Times, an unnamed hedge fund has spent millions to gobble up extremely bullish natural gas options with expirations later this winter. Specifically, the fund bought contracts with $10 strike prices that expire in January and February.

That means the fund is showing its confidence that natural gas prices will more than triple in the coming months. If it happens, or comes anywhere close to happening, the mysterious hedge fund stands to rake in tens of millions of dollars.

If it doesn’t happen, of course, and the situation gets even worse, the mysterious fund could lose everything.

So why would anybody make such a move?

Several reasons. First, even if natural gas prices do not hit the $10 strike price, the options could surge above last week’s trading price of $0.056 with even a slight short-term spike in prices or bullish speculation.

A four-percent turnaround in gas prices in the near future could lead to a triple-digit gain for the fund. That’s the beauty of options.

Beside an all-out speculative play, the firm could be hedging its book with the move. After already making a slew of cash playing the downside, this could be its plan to help ensure it keeps those gains even if prices make a quick turnaround.

The bullish argument for gas prices is an easy one to make. As natural gas prices and demand have plummeted over the last year, producers have cut their production. They have cancelled plans for new exploration and have slowed their development of new wells.

Eventually, the current market oversupply will turn into a shortage. When it happens, which very well could be this winter, prices will surge until equilibrium is met in the opposite direction.

Whenever the market’s pendulum swings this far, its momentum will carry it to the extremes of both sides.

Now is the time to enter natural gas plays, when nobody else wants to do it. The easiest way to make the move is to check out TFN Strategic Trader’s portfolio. There is more than enough in there to get you drooling.

Source: Taking a Big Bet on Natural Gas

Throughout financial history, you can find their likeness all over the world – even as far back as ancient Rome and Greece…or ancient Egypt, Mesopotamia and Persia. And in more modern times, you find their likeness in conglomerates – holding companies that deal in many different businesses. Run by a talented team – guided by solid investing principles – such a “does anything” structure can lead to great long-term track records of wealth creation for its shareholders. The old Teledyne, created by the late great Henry Singleton was one of the best. Warren Buffett’s Berkshire Hathaway is another modern example.

And I’ve recommended a few of these free-form merchants to the subscribers of Capital & Crisis. One such company is Loews Corp. ( NYSEL:L ), which is celebrating its 50th anniversary. Run by the Tisch family, which holds more than 20% of the stock, Loews has generated an annual return of 16% over those 50 years, compared with only 5.7% for the S&P 500. Of course, the past is no predictor of the future, but I like the philosophy and investments here. At today’s price, picking up Loews’ stock is like picking up free money, as I’ll show you.

The mix of assets has changed over time. Loews once owned movie theaters and supertankers, for instance. Not today. Last year, it dumped its tobacco company and picked up a natural gas explorer and producer. The Tisches are free to go where the opportunity is.

There are several things I really like about how the Tisches manage Loews, beyond the flexibility of the conglomerate approach. Two in particular stand out:

Share repurchases. Over time, Loews has cut the numbers of shares outstanding by buying back stock from time to time. Loews reduced its share count by 18% in 2008 and 30% since 2000. That means that over time, you own a bigger stake in the company. This is in great contrast to many companies in which the opposite is true. When share counts rise, that is dilution for the existing shareholders. Same assets, but now you share them with a lot more people.

This is one aspect of investing that most people simply do not follow much, but one that I pay a great deal of attention to. I have no use for managers who treat their shares like candy they hand out to themselves and their friends. In my book, Invest Like a Dealmaker, I cite research that shows how low price-to-book stocks with falling share counts beat out those where share counts rise. Respect the share count. Loews does that.

Additionally, I like how the Tisch’s commit themselves to maintaining an excellent financial condition. That means lots of cash and liquidity. I find it impressive that in 2008 – when most everyone was scrambling for cash – Loews was able to invest $2.5 billion and still finish the year with $2.3 billion cash at the holding company level.

Perhaps best of all is the value you get in owning Loews stock. Today, the company has three publicly traded subsidiaries. It owns 90% of CNA Financial, a large insurance company with ample levels of liquidity. It owns 50.4% of Diamond Offshore (NYSE:DO), a driller with sales of $3.5 billion last year and a backlog of $10 billion. It also has $700 million in cash and no debt. And Loews owns 74% of Boardwalk Pipeline (NYSE:BWP). Boardwalk has over 14,000 miles of pipeline in some of the most prolific natural gas basins in the country – the Barnett Share, Fayetteville, Haynesville and other places.

Forget that these investments are cheap in their own right. After all, Diamond Offshore is priced at less than half of its high and trades for only 8 times earnings. Boardwalk is nearly half its recent high and pays 9%. CNA is a third of its 52-week high and half of book value. Let’s just accept today’s market prices. Based on those market prices, the Loews’ stock price of $28 equals those investments.

Of course, Loews owns more than this. Loews owns HighMount Exploration, a natural gas company with 2.2 trillion cubic feet of reserves. HighMount probably chips in another $3.50 per share in value. Then there is the net cash, plus general partnership interests, preferred stock and Loews Hotels. The value of all these private investments is around $12-13 per share, by my estimate. That means Loews stock is worth at least $37-38 per share – even in this depressed environment.

With Loews at $25 per share as I write, the stock market is telling you that portfolio of private investments is worthless. Looks like a buy to me.

As I think about this crazy market, I don’t mind putting some dough with guys who’ve produced superior long-term track records, who’ve lots of cash and who pursue an investing philosophy I can warm up to. In this case, we also get in at a cheap price.

There is certainly a lot going on the market today – plenty to chew on and figure out. I look forward to seeing how it all unfolds. In the meantime, I feel good about investing alongside proven operators like Loews’ management.

Source: If Stocks Terrify You, Buy This

This from Lee:

In this globalized world, it’s no surprise to see the world’s financial markets intertwine in some fashion. That’s why we continue to see volatility run at much higher levels – be it in the stock market or commodities sector.

In the past, the physical and agricultural commodities have typically had very loose ties to the movement of the stock market. After all, why would the falling share price of Dell Inc. (Nasdaq: DELL) have anything to do with the price of corn or sugar? Ordinarily, no reason at all – but it’s not as simple as that any more…

A Changing Commodities World

The commodities world has changed in recent years – and if you know how to play volatility to your advantage, it’s changed for the better. Here are just three quick reasons why…

1. Instead of farmers merely using the commodities markets to hedge their crop, commodities have become more of a speculative game today.
2. It’s become very easy to trade commodities with a click of a mouse today.
3. Commodities are now seen as a viable and valuable portion of investment portfolios.

As a result of these three reasons, commodities are more subject to large money flows into and out of markets. With more individuals holding more commodities, they can sell off just like any other asset. And this can occur at the same time and with the same force as it does in the stock market.

In particularly volatile, and often irrational, markets like the current one, once the herd mentality takes over, the true fundamental value of crops can get unceremoniously shoved to the back burner in favor of what the crowd is doing.

In any event, the markets seem to have decided which direction they’re going to head in: Down…

Remarkable Value Amid The Market’s Rubble

Speaking of that irrationality I just noted, that’s pretty much the only way to sum up the price of numerous top-quality blue-chip stocks today. Many are trading at 15-year lows, with some even under $10.

But while this may cause some investors to throw a big pity party, if you believe in the long-term viability of the markets, putting some of your money to work today while everyone else is selling, it could present one of the greatest buying opportunities in a lifetime.

As for commodities, they will continue to trade on long-term fundamentals such as crop-growing cycles, weather patterns, herd size, supply and demand, etc. And there are some terrific opportunities here, too. So let’s get to it…

OPEC’s Winter Move Might Not Play Out Till Summer

In July 2008, the oil market began a downtrend that is still going strong today. The black stuff continues to make new lows, interspersed with quick bouts of short-lived upside rallies.

But once the price hits the descending moving averages (see chart below), the market gets knocked down again.  The combination of large oil supplies and waning worldwide demand has kept oil on the defensive, with $25 a barrel still in many analysts’ sights.

Three months on from OPEC’s supply cuts, we’re still waiting for the decision to factor into the market. At the moment, the farther-dated oil futures contracts are still moving lower in tandem with the front-month futures contracts.

I don’t think we’ll see the cuts make a dent in the market until at least June, so it looks like status quo for oil for the time being.

Two Ways To Play Our Bullish Outlook On Natural Gas

In a word… bullish.

That’s my take on the natural gas market, as the front-month futures contract has dipped below the pivotal long-term support area of $4.500 per MMBtu – a solid support level since late 2002.

At current levels, I continue to have a long-term bullish outlook. So how can you play the market?

1. Bullish trades involving long-dated, limited-risk options strategies (like option credit spreads) on natural gas futures options contracts, which trade on the NYMEX.
2. Invest in the Natural Gas exchange traded fund UNG that trades on the New York Stock Exchange.

I currently hold bullish natural gas positions in my Instant Money Trader and Triple Zone Profit Trader service that we run.

Knowing how the market can react to the upside with the threat of cold winters in the Northeast (where a majority of natural gas is consumed) and possible damaging hurricane activity on natural gas rigs in the Gulf of Mexico, I feel bullish plays here have a great risk/reward profile.

When You See The Dip… Buy

Amid all the financial market’s doom and gloom, one of the lone bright spots comes from a sector that we’ve mentioned as a pocket of strength for several weeks here.

It is, of course, the metals market – home to stalwarts like gold and silver.

Since December 2008, both have bounded along and made large upside moves. April gold futures have now crossed the watershed $1,000 per ounce mark – an area not seen since July 2008 – while May 2009 silver futures have managed to pop through $14.50 an ounce – silver’s first foray to that level since August 2008.

In mid-December, we noted that the gold and silver markets were beginning to look tradable again after washing out the speculative selling that had knocked the sector down from its all-time highs in July 2008.

With more “rational” investing now in these markets, and with global stock markets and economies still in turmoil, it continues to keep hard assets like gold and silver as the “go-to,” en vogue safe haven play.

Since we’ve already reached our near-term gold price forecast from the my previous column, plus our silver price outlook, too, we now believe that investors should step into bullish plays on large pullbacks in the gold and silver markets. It’s a strategy that should serve you well for the rest of 2009.

Look for gold to re-test the $865 area, while silver should re-test the $12.00 per ounce level.

And the way to play it…?

Other than looking at limited-risk option strategies from the COMEX futures options market, you can invest in the gold and silver markets through shares in ETFs like the SPDR Gold Trust (NYSE: GLD), Market Vectors Gold Miners (NYSE: GDX), or iShares Silver Trust (NYSE: SLV). You can also play options on these ETFs.

Drifting Below Support… And Creating Better Value

Having touched support levels that we thought would hold, the coffee and cotton markets have continued to drift lower. This will create an even better level to go long from and we’re just waiting for both markets to find a level that sticks.

With A Big Move Back Down, OJ Is Setting Up A Great Potential Entry Point

Lastly, I want to show you a long-term chart for orange juice futures.

This is another market we’ll be watching closely, as it’s now just about retraced the big upside move it made since the wave of hurricanes hit the Southeastern portion of the United States, beginning in 2004.

Each year, during late spring/early summer, the OJ speculators come out of the woodwork, trying to capitalize on potential disaster trades.

If OJ futures can re-touch the lows of 2004, it could be a great place to put in a low-risk bullish trade that aims to take advantage of any disruptions to the orange juice crop from this season’s hurricanes.

Lee Lowell

Source: Investing in Commodities: 3 Reasons Why Commodities Have Changed

This from Investment U:

President-elect Obama takes office in less than a week’s time. While many will be watching closely to see how he handles the ongoing financial crisis, I’ll be equally interested to see how he handles a far more ominous one: our ongoing energy and infrastructure crisis.

Regular readers know I believe energy and infrastructure are inextricably combined. We need cheap energy to fuel sustained economic growth. And we need infrastructure in place to move and dispense the energy from its source to its destination. Today I’m going to give you a perfect example of how the two are intertwined, and how one can play off the other to create a positive benefit for all.

In the face of gas prices that are less than half of what they were only a few months ago, it’s easy to think the “oil crisis” has passed. We can all return to “business and life as usual” – revert to our old driving habits – and just pay the lower price at the pump, right?

That would be a huge mistake. The real price we’ll pay will be our continued dependence on foreign oil. Last year, U.S. consumers and businesses spent over $475 billion hard-earned dollars for it.

Higher Gas Prices Are Around The Corner

With today’s lower prices forcing the cancellation or postponement of exploration projects around the world – and OPEC threatening more cuts – higher gas prices are just around the corner.

Just imagine for a minute, if – year after year – we took that nearly half a trillion dollars and reinvested it here. We’d have a stronger dollar, less susceptibility to economic downturns and recessions, and perhaps even a trade surplus as opposed to a trade deficit.

Well there’s one state that’s doing just that, setting an example the rest of the country should follow. As a result of their efforts, a growing percentage of money spent on auto fuel stays here. And car sales there are on fire. You see, these cars don’t burn gasoline. They run on a much cleaner fuel, one that’s found in abundance right here in the United States: natural gas.

We’re behind the natural gas as a fuel for cars curve, however. Worldwide, there are about eight million vehicles operating on natural gas. Here in the United States we only have 116,000. But Utah, with its estimated 6,000 vehicles, is breaking new ground. Even Utah’s Governor Jon Huntsman Jr. converted his state SUV to run on the clean burning fuel.

One word: cost.

Gas Prices In Utah – 85 Cents-A-Gallon

Natural gas prices at the pump in Utah are controlled, and are the cheapest in the nation, at the equivalent of roughly 85 cents-a-gallon. The other big advantage Utah has is the infrastructure to fill the cars. It’s fairly scarce in most other areas of the country.

And while natural gas is widely used in Europe at the consumer level, here its use is relegated to a few fleet vehicles. At the consumer level, it’s the classic Catch-22 situation. Carmakers – with Honda as the only notable exception – aren’t willing to make natural gas powered cars with so few filling stations available.

On the other side, filling stations don’t want to fork over the money to install expensive equipment to compress the gas, something that’s required in order to fill the tank on the car.

As is often the case, government intervention in the form of tax incentives or financing will go a long way towards breaking the logjam. California is leading the way, with legislation that offers a minimum $2,000 rebate to buyers of natural gas fueled cars.

Congress has legislation it will be considering this year that offers tax credits to consumers and producers alike, and mandates to install pumps at service stations across the country. The goal? Have the nation’s consumer fleet 10% powered by natural gas within 10 years.

Energy and Infrastructure Plays With a Natural Gas Bent

U.S. natural gas production remained stagnant for nearly nine years, and then in 2007, abruptly increased 9%. Improved drilling technology accounts for a large portion of the increase. Horizontal drilling and fracturing is fast becoming the preferred method of producing gas from difficult geological formations like shale.

And there’s plenty of it: Big shale deposits include the Marcellus, Bakken, Haynesville, Barnett and Woodford. Navigant Consulting, an industry consultant, estimates natural gas production can be ramped at least 50% to 30 trillion cubic feet per year between now and 2020, if necessary.

A simple way to play the gas game is to bet on one of the big producers, like:

• Chesapeake Energy (NYSE: CHK)
• Anadarko Petroleum (NYSE: APC)
• Or BP, PLC (NYSE: BP)

Once the gas is brought to the surface, it has to be distributed through our nation’s pipeline network. And that’s currently being expanded at a rapid rate to meet growing gas demand, primarily from utility customers. Take a look at three of the largest natural gas pipeline infrastructure companies in the United States:

• Kinder Morgan (NYSE: KMP)
• El Paso (NYSE: EP)
• Williams (NYSE: WMZ)

In summary, natural gas-burning vehicles represent a clean alternative to fossil fuels, and a good bridging solution until improved batteries enable meaningful numbers of plug-in electric hybrids. All the companies mentioned stand to score big if a serious natural gas auto mandate gets underway. And we’ll all be the better off for it.

Source: The Gas Prices Rollercoaster: Why Energy & Infrastructure Are Inextricably Combined

This from The Rude Awakening:

The panic in this market is incredible. It’s leading to some absurd valuations. Particularly among the smaller-cap stocks. These stocks have really been hit hard because they have less liquidity than large cap stocks.

When waves of selling sweep through the stock market, they might rock a large cap stock from stem to stern. But the same waves will capsize a small cap stock. So the conditions in the financial markets are very scary right now for any investor who’s holding small-cap resource stocks. But unless we slip into some global depression, these stocks will come back – and come back with a vengeance.

I, for one, can’t wait until earnings season, when we’ll get fresh numbers and updates on the companies I’ve been recommending to the subscribers of my investment service, Mayer’s Special Situations. I’m betting that the earnings power of many of these companies has not changed all that much in the last 90 days – at least not as much as their tumbling stock prices would have you believe.

So I’d like to highlight some stocks that look like particularly deep values right now.

NGAS Resources (NASDAQ:NGAS). Recent price: $1.47. I like the long-term outlook for natural gas. As T. Boone Pickens, the 80-year-old billionaire investor, says, “Natural gas is the fuel of the future.” It is clean-burning, and we have a lot of it in America. The estimates for U.S. shale plays are up around 840 trillion cubic feet of gas – the equivalent of more than 140 billion barrels of oil – or more than half the stated reserves of Saudi Arabia. Energy independence? Seems to me you have to look at natural gas.

NGAS has plenty of acreage. It also owns 636 miles of pipelines. It owns the critical infrastructure to bring its gas to market. The proved reserves alone – some 102 billion cubic feet of gas – ought to fetch $10 per share for a potential purchaser. The pipelines, at only 10 times pretax earnings, come in at about $65 million – or $2.50 per share. So infrastructure assets – which are becoming increasingly expensive to build – easily cover your entire investment in NGAS, since the shares trade for about $1.48 as I write. And I haven’t even put any value on the undeveloped acreage. The net asset value (NAV) per share on NGAS is somewhere north of $12 per share.

NGAS has some debt, which we have to watch. It has $95 million in debt, but it is not due until 2010 and 2011. If natural gas prices stay low for a long stretch of time, this debt could cause some problems. The value of the assets in NGAS, though, offers a lot of protection.

OM Group (NYSE:OMG). Recent price: $18.63. This is another one that baffles. OM Group had a great quarter ending June 30, and the shares surged 18% the day it announced earnings and nearly got to $40 in the ensuing rally. We got our shares for $30. Today, they are about $19. Amazing.

OM Group makes all kinds of chemicals, powders and materials, mostly from three metals: cobalt, nickel and copper. You can find the original recommendation in letter No. 25. That thesis is still intact, and I won’t rehash the whole thing here. Except I will point out that the company now trades for 3.5 times earnings. Predicting where these earnings will go from here is almost impossible. But I’m comfortable with the cobalt story and the metal’s growing use in batteries and aerospace. And at these prices, you can be wrong on earnings and still come out looking good.

Cobalt prices have tumbled to $13 per pound, compared to about $35 one year ago. As a result, earnings estimates are all over the map – ranging from $1.90 a share on the low side to $5.00 on the high side. For perspective, OMG earned $5.00 in 2007, when the cobalt price averaged $29 a pound. So maybe 2009 is a bad year. But the cobalt price will rebound eventually, and when it does, OMG will rebound as well. I should also point out that OMG has no net debt and plenty of excess cash, yet trades for less than half of stated book value.

The market is factoring in a very gloomy outlook for OMG, even though the most recent quarter gave us nothing but positive news (remember that 18% single-day gain). The market seems to have forgotten that and thrown out OM Group’s shares with all other commodity names.

Canadian Superior Energy (AMEX:SMX). Recent Price: $1.01 I was in Manhattan recently for the Value Investing Congress. The West Coast Asset Management team was there. They made a presentation on a few ideas they like. Someone asked them about Canadian Superior, which was their favorite idea about six months ago. They still like it and said that since their presentation, Canadian “has done nothing but knock the cover off the ball.”

I agree. Since we’ve owned it, Canadian has delivered good news on the exploration front and overall good results. These bits of news have, at times, sent the shares up as much as 20% in a single day. But those gains soon melted under the barrage of broader bad economic news and the market’s overwhelming sell-off.

As long as natural gas prices remain in the can, it seems as if market sentiment won’t turn much on the natural gas names. The market has just stomped on all of them and pushed share prices to really cheap levels. I think Canadian is a steal and gives you legitimate 10 times potential from its current price of only $1.00 per share. We picked up shares in June, and you can find the full write-up in letter No. 24.

Altius Minerals (TSX:ALS). Recent price: C$4.10. Altius owns a portfolio of royalties and prospects in Newfoundland and Labrador. This stock has tumbled to the sort of valuation extreme that I have rarely seen during my carreer. In fact, it is so statistically cheap that it is the kind of stock I have only read about in the dusty financial history books on the Great Depression. It’s something Ben Graham might’ve stumbled on in 1934.

The stock sells for less than its net cash!

The stock market currently values Altius at C$127 million. But as recently as June 30, the company had $187 million in cash. And that’s not its only asset. Nor is the company losing money. It’s actually adding to that cash pile. No surprise that insiders are buying. Plus, the company announced it would buy back 10% of the stock. So at the current price, in theory, you can buy the company for $127 million, drain the company treasury to get your purchase price back and still have $46 million left in cash, plus all the assets for free.

Altius, like all the stocks I have I highlighted here, look really, really cheap, with big upside.

I believe that’s really all we can do as investors. We can’t say what other people will pay for the stock or when they might pay more than they do today. We can only find these anomalies and wait for the market to correct the gaps, as it does over time.

I know that for the last couple of months, the stock market has been a very treacherous place for investment capital. On the other hand, cheap is cheap. And some of the stocks I’ve mentioned above are “Depression-style” cheap. I am not trading in and out of the market, trying to pick tops and bottoms. I believe such an effort is futile. Instead, I look for deep values and collect good bets.

Over time, we’ll get paid. But in crazy markets like this, we have to realize it might take a little while. We’ll have to be patient and build low-cost positions in these stocks. These are the times when you plant the seeds of monster future returns.

All bear market cycles turn eventually – as even this one will.

Source: Shooting Stocks in a Barrel, Part II

This from Taipan Daily:

Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking.

— Vice–President-Elect Joe Biden

Just a few weeks ago, Vice–President-elect Joe Biden (back when he was plain old Senator Joe Biden) promised the world that Barack Obama will be “tested” by America’s enemies.

“Remember I said it standing here,” Biden told his Seattle audience, “if you don’t remember anything else I said. Watch, we’re going to have an international crisis, a generated crisis, to test the mettle of [Barack Obama]. And he’s going to have to make some really tough — I don’t know what the decision’s gonna be, but I promise you it will occur. As a student of history and having served with seven presidents, I guarantee you it’s going to happen.”

Say it ain’t so, Joe…

Russia: “I’m Your Huckleberry”

With no time to waste, it seems Mr. Biden’s words have already come true. Within 24 hours of Obama’s historic victory, Russia elected to stir the pot. As the Financial Times reports,

Russia’s president Dmitry Medvedev on Wednesday became the first world leader to throw down a gauntlet to U.S. president-elect Barack Obama, declaring that the Kremlin would station missiles in the tiny Russian enclave of Kaliningrad, which borders Poland, in response to U.S. plans for an anti-missile system in Eastern Europe.

Your humble editor is a big fan of old spaghetti westerns – Clint Eastwood westerns in particular. The Good, the Bad & the Ugly… The Outlaw Josey Wales… Unforgiven… and so on.

But one of the best westerns ever, in part for its cheek and cheesiness, has to be Tombstone, with Kurt Russell, Val Kilmer, Bill Paxton, and a few other notables.

One of Tombstone’s best lines is when Doc Holliday (Val Kilmer) tells Johnny Ringo, “I’m your huckleberry.” Meaning, “I’m the man you want to fight.”

October 13th, 2008: Dawn of a NEW COLD WAR

Overnight, the superpowers find themselves locked in a stare-down over a newly-confirmed strategic energy reserve that could last 391 years. Here’s how you could rake in “spoils” of 19,000% no matter who prevails…

In acting so swiftly to station missiles on the Poland border, Russia is in effect saying to the U.S. President-elect: “I’m your huckleberry. Let’s see what you’re going to do.”

What’s more, this plan does not feel like something Medvedev could have cooked up all by himself. To the contrary, it has Vladimir Putin’s fingerprints all over it.

So is it really a further surprise, then, to hear the Russian newspaper Vedomosti predict that Putin could retake his post as Russia’s president (with the current occupant stepping aside) sometime in 2009?

I have no idea how President Obama will respond to a newly-hostile Russia. My guess is that he will prove much less the “dove” than some expect… that the pragmatic Chicago operator in him could find the means to take a very hard line.

Dove or hawk, we’ll get a chance to find out either way…

A few weeks ago we noted in these pages that “falling oil is a geopolitical time bomb.” That notion holds true as ever, I believe. We just can’t be sure when or in what fashion the bomb will go off.

OPEC Still a Factor

Meanwhile, the Saudis aren’t exactly sitting on their duffs. Crude oil prices saw a ten percent jump earlier this week on news of the Kingdom’s production cuts.

There is open question as to just how effective OPEC really is. Some believe there is so much “cheating” going on that changes in the official quotas amount to little more than hot air. And with budgets getting tighter, the Saudis are one of the rare OPEC producers with enough “swing” capacity to really make a difference in day-to-day crude supply.

With that said, though, the long-term trend for oil prices remains up, not down… and that means greater concentration of power for OPEC. The IEA (International Energy Agency) is expected to release its “World Energy Outlook,” an annual report of sorts detailing the state of energy production around the globe, very shortly.

In that report (according to those who have seen advance copies), the IEA will release a forecast of $200 per barrel oil by 2030. The IEA expects a tripling of OPEC’s revenue in the coming years, from $700 billion in 2007 to more than $2 trillion down the road.

The IEA further notes “a real risk that underinvestment… will cause an oil supply crunch,” and that we will see “persistently higher levels of consumer spending on oil.” No surprises there.

Direction, Not Destination

How much stock should we put in a forecast for oil’s price more than 20 years out? Not much, obviously. I have no idea where the price of oil will be in 2030. (If they were honest, the IEA would admit they don’t either.)

But there is still value in this type of forecasting, because rigorous analysis of the data helps uncover the likely direction of the long-term trend.

We may not know how high or how fast oil’s price will rise in future… but we do know that the long-run direction for energy prices is still UP — not down —  in spite of the recent price implosion.

The credit crunch and ensuing panic have put global growth projections on hold for a time —  but it is only a pause, not a halt. Nor has the reality changed that all the “easy” oil is gone… that remaining oil supplies are getting ever harder to find… and that the NOCs (national oil companies) are increasingly hoarding the spoils for themselves, forcing the western oil majors to pursue ever tougher and riskier projects.

(Eventually) Back in Black

As far as the global economy goes, the worst case scenario for 2009 is one in which the powers that be screw things up so badly that we wind up with Great Depression 2.0.

Barring that tragic outcome — and it’s a pretty low-probability scenario I might add — a real problem we will face is lack of preparedness when demand trends come back on line.

As outlined in our explanation of why the commodity supercycle isn’t dead, a lack of capital spending now will likely lead to even bigger production bottlenecks in future.

And so, in short, I believe that while the price of oil got “crunched” along with everything else — the dollar’s sharp rise playing a role too — energy prices will bounce back with even more velocity and vigor when global growth returns.

And when that happens, we’ll have the same problems to deal with that were temporarily back-burnered by the credit crisis… and as a result, natural gas will play an expanding role.

Jumpin’ Jack Flash It’s A…

When we talk about oil and gas, we typically forget about the “gas” part. This is largely due to the varying roles that the major fossil fuels play. Oil is the big dog because we use it for transport. Coal is king because we use it for heat and electricity.

Natural gas has many uses too, but it’s a less critical piece of the energy puzzle in comparison to its bigger, dirtier fossil fuel brethren.

Oil and gas have big troubles though. The trouble with oil is that we are running out of it (or the easy stuff at any rate). The trouble with coal is that we hate it. America and China have more coal than they know what to do with, but coal is viewed as public enemy number one from an environmental standpoint.

The reality of rising demand is that oil and coal won’t go away — but alternatives will become all the more important. We’ll keep burning all the oil we can, and on a global basis, we’ll see new coal plants firing up every week for the next twenty to thirty years.

But natural gas still has room to be a much bigger part of the mix because coal is so undesirable as a primary electricity source, and the available oil just won’t be enough.

Natural gas is hard to transport across oceans now. But it will become much easier to transport as more LNG (liquid natural gas) facilities get built. In the same vein, it’s not very common these days to think of natural gas as a “transport” fuel… that is to say, something you put in your gas tank. But that mindset will change too, as Western countries move towards the mutually supportive goals of cleaner energy sources and less oil dependence at the same time.

We are nearing the stage, for example, when electric cars become truly viable on a mass scale. Technology, political will, public sentiment, and investor capital are all finally converging on this idea simultaneously.

When we see it really take off, chances are many of these next-gen cars could draw their electricity from natural gas-fired power plants. That’s just one quick example of how natural gas, the cleanest and least offensive of the major fossil fuels, can grab a march on oil and coal. There are plenty more.

Rumblings of GOPEC

As one might expect, the world’s major oil exporters tend to be the world’s natural gas powerhouses too. Last time I checked, Russia held an estimated 25% of the world’s known gas reserves.

“Free Money” From the Government?

Follow the detailed instructions outlined in this letter and you’ll learn how to add $4,570 to $11,450 to your bank account every month, courtesy of the U.S. government. Sound too good to be true?

Read on and learn how you can boost your bank account every month …

As an aside, there has been a lot of excitement around natural gas shale finds in the US, but the “decline rates” on shale are extraordinary — as high as 70% in the first year. Thus if natural gas truly catches on in terms of consumer heating and transport trends, North America will be back in its same old position… running to stand still as new gas production barely keeps up with the old production’s decline.

This creates an opening for the big gas players — Russia leading them — to band together and form a sort of “GOPEC,” or “natural gas OPEC.”

In fact, the GOPEC idea has already moved beyond the “maybe we should ponder this” stage and progressed to serious implementation. As the UK Guardian reported just recently,

Western concerns about global energy markets hit new heights [in late October] when Russia, Iran and Qatar said they were forming an OPEC-style gas cartel.

The move by the three countries, which control 60% of the world’s gas reserves, was met with immediate opposition from the European commission, which fears the group could drive up prices.

Alexey Miller, chairman of Russia’s Gazprom, said they were forming a “big gas troika” and warned that the era of cheap hydrocarbons had come to an end.

“We are united by the world’s largest gas reserves, common strategic interests and, which is of great importance, high cooperation potential in tripartite projects,” he explained. “We have agreed to hold regular — three to four times a year — meetings of the gas G3 to discuss the crucial issues of mutual interest.”

Don’t Get Fooled Again

In conclusion, investors who think cheap oil and gas will stay cheap should take a lesson from Pete Townshend and the Who. They should get on their knees and pray they don’t get fooled again.

“Meet the new boss, same as the old boss” might not apply to President-elect Obama, who is most decidedly not the same as President Bush. But it does apply to the same old realities of supply and demand.

The world’s oil and gas reserves are still a scarce resource, relative to the global demand that will eventually be coming back on line. The fact that Wall Street has temporarily lost sight of this creates short-term opportunity to scoop up well-run, well-capitalized energy players at insanely cheap valuations.

I’ll confess, too, that I like the little guys here a lot more than the big guys.

The big, well-muscled oil majors like Exxon and BP are bursting with cash and profits right about now — a sign of stability and comfort for nervous investors. The trouble is, all that stability may well be priced in to the shares… and at the same time, the hidden troubles that the oil majors will face in finding replacement reserves do not feel adequately priced in.

Exxon is heralded for its cash and ledger-busting profits, for instance, but few talk about the troubles the big behemoth will have replacing depleted reserves down the road… a task that is getting harder by the day.

Many of the little guys, on the other hand — smaller, more nimble energy companies that are often good takeover candidates — are in an opposite position to the oil majors. Their values are being discounted by Wall Street due to an irrational fear that the financing of current operations won’t hold up.

In other words, we’re in an environment where investors are perhaps paying up too much for the perception of safety, while shying away from the opportunity to pick up great assets at a discount because of an overcompensated aversion to risk.

That’s the kind of discrepancy great investors love to exploit all day long.

And, last but not least, there’s a bonus factor in regard to the “big boys” being stuffed with cash right now — their big cash positions and tough replacement challenges make it easier for them to buy new production versus going out and finding it. (This is sometimes known as “drilling for oil on Wall Street.”) In other words, it’s all the more likely for an Exxon or a BP to spend some of its hoard snapping up smaller names at a fat premium to the going share price.

The Best of Times, the Worst of Times

Charles Dickens opened up A Tale of Two Cities with the famous line, “It was the best of times, it was the worst of times.”

That’s a good summation of how I feel about markets right now. We just went through some of the worst carnage in a hundred years… but at the same time, the fact it’s been the “worst of times” is also what makes it the “best of times” in terms of here-and-now opportunities.

Your spoils of the NEW COLD WAR: 19,000% Gains

On October 13th, an unexpected, world-changing resource discovery put the superpowers at odds — and YOU in the catbird seat. Here’s how to play the coming stare-down for gains of up to 190 TIMES YOUR MONEY…

Exploiting the wide disconnect between public perception and the inevitable reality of the looming “oil and gas showdown” headed our way is exactly how sharp-eyed contrarians get rich. It’s a textbook example, right in front of our eyes, of how new fortunes are built in the aftermath of crisis.

Oh, and one last thing. Speaking of “crisis,” I recently received some interesting intel from Christian DeHaemer, the editor of Breakaway Investor and Crisis Trader.

Not only is DeHaemer relaxed about the looming prospect of a natural gas OPEC, he’s actually excited about it. Why? Because Crisis Trader has pierced the veil of secrecy shrouding a new “natural gas superpower…” an unexpected gas find so big and so astonishing that Russia and the other hoarders will be knocked back on their heels by this new player’s entrance into the game.

DeHaemer also believes he’s found the one company poised to make astonishing gains from this find… and he reveals it to Crisis Trader subscribers. You can find out more here.

Source: As Russia Tests the Waters, an Oil & Gas Showdown Looms

In one story, the Journal covers a recently released annual report from the International Energy Agency. According to the Journal, the IAE paints a gloomy picture of energy shortages and escalating costs of discovery and recovery.

The IAE says that current low oil prices are an anomaly linked to the economic crisis embracing the world. Eventually, when the economy regains its health, oil prices will continue to climb over the coming years to hit $200 a barrel by 2030.

One problem with energy prices remains a dilapidated infrastructure. In turn, energy companies would have to invest more than $26 trillion by 2030, with over half of that going to increased power generation and distribution. Most of the rest of the investment will go to exploring and developing new sources of oil, the Journal writes.

Underinvestment by the oil industry could be just as responsible as increased global consumption for future price increases. Energy companies will have to spend $350 billion a year on new oil and gas projects through 2030. By comparison, the industry spent a total of $390 billion from 2000 to 2007, said the Journal.

There are two obstacles faced by oil companies when it comes to making these massive investments.

The first is the state of the current economy and shrinking energy consumption. The second is that many oil fields are past their prime, as Peak Oil proponents have been saying for decades. To extract more oil presents a questionable economic argument for new investment.

The IEA asserts, however, that renewable energy sources will grow by over 7% a year – reaching 4% of the world total by 2030, up from 1% in 2006.

That said, the IEA also said the U.S., Europe and Japan will likely never use more oil than they did last year. All projected increases in oil demand will come from the developing world, mainly China, India and the Middle East.

So if in fact the U.S. oil consumption has peaked, does it make sense for our new democratic regime to sink $150 billion over the next decade into creating new jobs for the green sector?

That’s the question asked in the second article in today’s Journal.

This piece challenges the wisdom of creating government-subsidized green jobs, at a time when the jury is still out about the economics of green energy.

President-elect Obama maintains that spending $150 billion over the next decade to boost energy efficiency would help create five million jobs, according to the Journal.

But the article goes on to say that these numbers are under assault by another contingent in the Obama camp.

As the Journal writes, several studies estimate that $1 invested in renewable energy or energy efficiency would yield up to four times as many jobs as $1 invested in oil and gas, whose basic infrastructure of wells, refineries and pipelines has been around for years. Moreover, those studies say, clean-energy jobs are likely to be centered in the U.S., unlike jobs in the oil and gas industry, which increasingly are spread around the world.

From our perspective, this argument is riddled with holes. Right now, China is the dominant supplier of solar-energy systems and plans on extending its lead. China is also making a push to develop state-of-the-art wind turbines.

While heavy hitters such as General Electric and T. Boone Pickens talk about their multi-billion investments in wind, there has been little competition to get these deals. Sooner rather than later, China will step in – and we know how that story ends.

The Journal also says that job creation in a burgeoning green sector could also lead to job losses in mature energy industries such as coal and oil.

Robert Pollin, a professor at the University of Massachusetts, Amherst, who co-wrote a study that questions the job target by the Obama campaign.

It said that $100 billion spent over two years could produce two million green jobs, according to the Journal. But his study didn’t count jobs that might be lost elsewhere in the economy if the country shifted to more expensive sources of green energy.

As we see it, more expensive energy leads to inflation, which also results in job losses. Businesses have to maintain a certain level of profitability, and if they’re paying more for clean energy it seems that heads will roll in the interest of net profits.

Once again, the numbers point to higher investments in fossil-fuel infrastructure versus clean energy. It’s not that we’re opposed to a cleaner environment, but new technologies in fossil-fuel discovery, reduced emissions and improved efficiency will continue to provide bigger returns in fossil fuels.

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?

Perhaps the biggest green market, however, will not be an Obama-led green mandate, but emerging markets like China and India. In these places, green presents a true economic gain untethered from the price of oil, coal or natural gas.

That’s because the cost of pollution in these economies has a true impact on the GDP. Pollution raises the price of food, energy and health care. In the case of China, the pollution quotient adds enough overhead to make countries such as Vietnam, Pakistan and Thailand lower cost providers.

In India, the battle of a new Tata Motors plant for the company’s sub-micro thrifty car has forced a relocation that cost Tata millions.

Here in the U.S., though, a new era of subsidized green may lose its luster if fossil fuel prices stabilize at current levels – or even drop.

Green alternatives have always been pegged to the cost of doing business in a fossil-fuel economy. That’s why we saw so many solar IPOs soar with the ever-climbing price of oil. As oil prices retreated, so went the fortunes of so many solar investors.

This proves that self-righteousness is not a technical indicator or an incentive for long-term investments in the green sector. Self-righteousness is not the same as greed, which directly affects the climate for trading.

Now that the green movement has appropriated nuclear, we could see some distorted numbers creeping into the market as why alternative energy is more economically viable than two years ago.

But even the uranium industry doesn’t believe that, with the price of yellow cake down about half from a year ago.

For green stocks to truly perform, the American economy has to be resuscitated.

Over the long haul, green stocks will find themselves tied more to consumer spending than to government hand-outs. Once the economy is restored, and people start driving to the mall and vacation homes in the Outer Banks; once Americans stop conserving energy and turn up the heat in their homes to stay warm; and once alternative energy returns to a better economic alternative to fossil fuels — at that time we’ll see green stocks being to take off again.

Near term, green stocks could be a speculators playground as the Obama halo effect sends up prices. In the mean time, I’d still put my money in oil drillers.

This from The Rude Awakening:

The last time I recommended T-3 Energy Services (NASDAQ:TTES) to the subscribers of my investment letter, Capital & Crisis, the stock tripled over the ensuing months. And even after I issued a “Sell” recommendation on the stock, it continued to move higher. But that was WAY back in July…and nothing is like it used to be.

From a high of $84 a share in July of this year, the stock has come all the way back down to $17. I issued a “Buy” on the stock in April of 2007, when it was selling for $21.60. We sold our final half at $63.60 — it’s now more than 70% below that price. And you know what? Not much has really changed…except the stock’s valuation. TTES is selling for about 6 times earnings now and about 5 times next year’s guess…and the company is enjoying huge macro-economic tailwinds.

T-3 makes something absolutely critical to drilling rigs. It’s called a blowout preventer (BOP). BOPs protect the crew — and preserve the rig — in the event of surges in the well. You absolutely have to them. Crews won’t work rigs without BOPs and anybody concerned about safety would never put a crew on a rig without them.

T-3 has about 15% of the market for new BOPs. If you count refurbishing older rigs, T-3 has about 30% of the market. It’s a small company, but a key player in this niche. BOPs make up about 70% of T-3’s business.

The remaining 30% includes a variety of other services for wellhead equipment and onshore pipelines. T-3’s customers are drilling contractors, exploration and production companies and pipeline companies.

Demand for T-3’s services follows drilling activity. Over the years, we’ve had to drill more and more gas wells, just to maintain current levels of production. That’s because the newer wells tend to deplete much more quickly that the old wells used to.

That trend has only continued. According to Baker Hughes, the number of working rigs rose to 1,782 at the end of 2007 to 1,906 today. As we exploit the more unconventional shale basins, which are more drilling intensive, the number of working rigs ought to keep rising.

The shale plays I’ve written about before – the Barnett, Fayetteville and in the Appalachian regions – all take a lot of drilling. Since 2001, for example, drilling in the Barnett is up nine-fold by rig count. These prolific plays now make up 12% of the total rig count according to Raymond James.

Drilling activity is what really drives T-3’s business. And energy prices dictate drilling activity. So, as the price of oil and gas has come down a bunch, the market has crushed T-3’s stock price. I think, though, that it’s been overdone. Drilling activity may slow, but we’re not rolling back to 2002 levels, which is how the market is pricing T-3.

I also especially like the rig equipment and infrastructure market. Since 2004, this market has grown 27% annually, which tops the broader oilfield services group. (The latter grew about 17% annually.) T-3 serves a good niche in this sub-market.

The company is also expanding overseas. Already 60% of the company’s sales come from overseas markets. New orders from West Africa and Russia, new subsea orders and new orders from its joint venture in the Middle East could all be catalysts for the stock price beyond just solid execution of its existing business. Earlier this year, T-3 won a contract for work in West Africa, which was the biggest single award in the company’s history. As of the last conference call, T-3 said it had $320 million in outstanding bids and 60% of that was for international markets.

Last quarter, the company reported a backlog of $81 million, a 36% increase from the prior quarter and a 31% increase from a year ago. T-3 should grow earnings at a 25% clip, yet it’s trading for 7 times earnings. You got a lot of room for error when you buy something for 7 times earnings that’s growing 25% per year.

T-3 will probably earn $40 million in free cash flow this year. Next year, the company should generate $50 million in free cash flow and earn close to $4 per share. At current prices, therefore, you’re paying less than 5 times next year’s guess for a 21% free cash flow yield. Those are bargain numbers for a healthy, growing business with little debt.

Another way to look at the stock’s value is to look at past acquisitions. Last year, acquirers paid 11 times EBITDA (earnings before interest, taxes, depreciation and amortization) for companies in this sector. Even this year, if you could pull off an acquisition at 8 times EBITDA in this sector, you were a hero. Analysts would praise you for making a good deal. Now the sector is in the toilet. T-3 trades for a bit more than 4 times EBITDA. So again, there seems to be plenty of room on the value spectrum here. The world did not change so much in the last 90 days as stock market prices seem to indicate.

Right now, multiples across the resource sector have just collapsed. If T-3 were to regain a reasonable multiple of only 10 times earnings — well below what it commanded even months ago — T-3 could be a $40 stock by next year. That’s more than double.

If we get some more juice from oil and gas prices, we could go much higher. Some of the research I’ve read on the company puts the value much higher, in the range of $72 to $90 per share. Remember, the stock hit $84 this year.  So, I think my numbers are quite reasonable. We’ve got a good shot to do a lot better than $48 per share, perhaps getting back to around $60 and tripling our money again.

I’d buy the stock up to $25 a share.

Source: Fallen Angels