David Fessler (Money Morning):

By the time 2009 is in the books, the record will show that solar energy stocks endured a tough year. That’s hardly a surprise, given that so many Wall Street analysts (yours truly not among them) lambasted the sector for much of the year.

Analysts also expect the carnage to continue into 2010, and are predicting losses for as many as half of the world’s solar companies.

The “thought process” of a Wall Street analyst – and I use that title loosely – goes something like this:

• Analysts first suggest that a “huge” oversupply of polysilicon (the raw material used to make silicon-based panel assemblies) exists. But this is only partially true, as increasing panel sales are rapidly eating into this oversupply.
• The analysts’ next miscue is over new thin-film panel technologies. They predict companies producing panels based on the new thin-film designs are doomed because the oversupply of polysilicon will keep poly-based panel prices too low for the thin-film guys to compete.

Talk about a myopic view if there ever was one. I suspect many of these analysts will be eating crow instead of turkey for Thanksgiving dinner next year.

In the meantime, allow me to outline the real story on the solar energy sector…

Click here for the rest of Mr. Fessler’s analysis at Money Morning.

David Fessler (Investment U):

By the time 2009 is in the books, the record will show that solar energy stocks endured a tough year. Hardly surprising, with many Wall Street analysts (yours truly not among them) lambasting the sector for much of the year.

What’s more, they also expect the carnage to continue into 2010, with losses predicted for as many as half the world’s solar companies.

The analysts’ “thought” process – and I use that term loosely – goes something like this:

• First, they suggest that a “huge” oversupply of polysilicon (the raw material used to make silicon-based panel assemblies) exists. But this is only partially true, as increasing panel sales are rapidly eating into this oversupply. 
• The analysts’ next miscue is over new thin-film panel technologies. They predict companies producing panels based on the new thin-film designs are doomed because the oversupply of polysilicon will keep poly-based panel prices too low for the thin-film guys to compete.

Talk about a myopic view if there ever was one. I suspect many of these analysts will be eating crow instead of turkey at Thanksgiving next year. Here’s the real story on the solar energy sector…

Note to Experts: Refill Your Glasses

Before I go any further, let me say that some solar energy companies will lose money in 2010. Others won’t make it at all. But that’s normal in any competitive environment.

But the experts need someone to refill their half-empty glasses, so I’ll play the role of bartender.

The truth is that the solar enery sector – particularly thin-film panels – is growing at a rapid pace. It’s one of the reasons why Trony Solar Holdings Company Ltd. (NYSE: TRO) is expected to go public in the next few weeks. Trony is China’s largest manufacturer of thin-film based solar modules.

Its IPO – underwritten by JP Morgan (NYSE: JPM) and Credit Suisse (NYSE: CS) – is expected to raise over $200 million. And it’s oversubscribed, too. That doesn’t sound like an industry in trouble to me.

And it certainly doesn’t sound like an industry that’s doomed to replicate the 1980s, when 400 solar panel manufacturers got whittled down to just five as the market collapsed.

The market for solar photovoltaic panels (those that produce electricity) is increasing rapidly. All the industry needs is a little change in perception…

Click here for the rest of Mr. Fessler’s analysis at Investment U.

As the big dominos of $125 oil, $4 copper, $6 corn, and $1,000 gold fall onto the market, raw-material producers enjoy record cash flows. The next domino is all the cash finding its way to companies that supply equipment, services, and infrastructure to those producers.

If you’ve listened to our commentary on oil services, you’ve probably made a lot of money. But don’t forget companies like John Deere… Don’t forget the “ag services.”

John Deere is America’s largest farm-equipment maker. Think tractors, hay balers, plows, mowers, planters, and combines. Deere expects the booming farm economy to push up ag equipment sales by 35% in 2008. Shares are in a smooth uptrend. Like oil-service stocks, expect ag services to keep rising in response to high corn and bean prices.

Source: The Other Way to Make a Fortune in ‘Services’

Both gold and oil are hedges against inflation… but which one is the best?

The divergence between the prices of gold and oil has been the subject of much speculation over the last few months. The FT waded into the argument this morning with two opposing views on the front page of Companies & Markets.

The first came from Ian Harnett at Absolute Strategy Research. He noted that an intriguing feature of the current oil price spike was that it brought the price of WTI to a 40-year high when compared with the price of gold.

“Only briefly – back in the late summer of 2005 – has an ounce of gold purchased fewer barrels of oil. We expect such a situation is unlikely to last for long… so it may be time to be long gold and short black gold,” he said.

Then there was the view from Julian Jessop of Capital Economics. He argues that the ratio between the two commodities was not stable over time and he reckons that gold has its limitations as an inflation hedge.

He thought gold’s recent slide was down to the fact that the dollar is set to undergo a slight recovery and the rise in the oil price was down to expectations of emerging market growth. The fledgling economies need more oil than gold. Based on this argument, he reckons that the gold price will not get moving until there is evidence of significant inflation in the US.

So where do I stand?

Well, I lean more toward the view from Julian Jessop. My argument is that the gold price fall was driven by the realisation that the US Fed was running out of rate-cut ammunition. They can’t cut rates much below 2%.

However, I am also sure that inflationary pressures are building in all economies, driven by food-price inflation and rising raw material costs. I think significant inflation is here already, so Jessop’s trigger that will get the gold price moving again is actually with us now. When markets will wake up to this fact I simply do not know… but I believe they will.

I also reckon that supply and demand dynamics in the oil industry will keep the oil price above $100 for the rest of this year… but I cannot ignore the speculative element of recent gains.

The view that gold will not start moving again until US inflation ratchets up is commonly held in the market – this has made investors seeking a hedge favour oil. Recent US inflation data has been tame, but regular readers know that I do not believe inflation figures released by governments… they are all damned lies.

US consumer prices rose a smaller-than-expected 0.2% in April and everyone breathed a sign of relief. I reckon this was a mistake.

Governments manipulate figures. They change the way unemployment is calculated to flatter the figures and they massage inflation data to meet their own ends. I therefore don’t believe the US inflation data – and anyone who buys food or gas in the US (that’s, almost everyone) could see that these figures are essentially a lie.

Fortunately, shadowstats.com calculates CPI the old-fashioned way. It uses the methodology applied before 1990, when Bill Clinton started playing with the way these figures are worked out.

Pre-1990 methods indicate a US annual CPI rate of just below 12%.

This is much more believable. I think the same is the case in the UK too… just think about how much your electricity bills, petrol costs and food bills have gone up. That’s not even considering soaring council tax bills and Gordon’s underhand stealth taxes.

The reality is that we are in a very serious inflationary environment. We are also seeing accelerating oil demand from emerging economies.

Investors seeking a hedge against inflation can choose between gold or oil. Over the last few months, oil has won out and investors seeking a hedge have put money in oil futures as a momentum trade. Harnett’s argument was that this was about to be reversed and you should sell oil and buy gold.

I disagree…

You should buy oil AND buy gold…

Demand will support the oil price and inflation will eventually get the gold price moving.

There may be time in the coming months and years when the market favours gold as a hedge and when it favours oil. By owning both, you can let debates such as the one seen in the FT today play out, safe in the knowledge you are hedged against the ebb and flow of these views.

Long-term, however, the price of oil is heading higher and the price of gold is as well, so the which-is-a-better-hedge debate is irrelevant to those with a long-term view.

These commodity-price rises will be caused by rampaging inflation, by the demise of the dollar as oil is priced in other currencies and by soaring demand from Asia.

You need to own both gold and oil. Then you can ignore these debates about which is the better hedge.

Remember: We are investors not traders… the long term outlook for both commodity classes is extremely bullish.

The only problem you should be facing… is deciding which oil and gold stocks to buy. With the prices for both certain to rise… and give a great hedge… what does it matter which stocks you buy?

Such thinking is nonsense… there are a multitude of wrong moves to be made in these markets. Discover what all the right moves are now…

Regards

Garry White
Editor
Smart Commodities UK

Source: Gold or Oil, No One Agrees on the Best Hedge