And so it begins. Just yesterday, we here at the TFN offices got into a late-day discussion about the fate of the nation’s natural gas markets.

With prices remaining low and entirely removed from the recent commodities bonanza, the nation’s expanding natural gas drilling industry is headed for trouble.

Today we got the news that proves our theory.

ConocoPhillips (NYSE:COP), the third largest of the nation’s Big Oil players, announced it is cutting its capital spending budget by nearly 10% and is selling some $10 billion worth of assets.

Why the drastic moves? Thanks in part to stubbornly low natural gas prices, the company needs to make the cuts to shore up a leveraged balance sheet.

If you recall, just last week the company warned Wall Street to expect reduced earnings figures thanks to a 67% reduction in natural gas prices.

There was similar news yesterday from nation’s second-largest producer, Chevron (NYSE:CVX). The California-based company quietly announced all drilling has stopped at its Piceance Basin facilities in Colorado.

I bet you can guess why they plugged the well. Yep, you betcha, low natural gas prices.

Drill, baby, drill

So if the natural gas price conundrum is having this effect on the nation’s largest companies and their multi-billion dollar cash flows, what is it doing to the tiny, marginal players?

Early last month, Trident Resources gave us a glimpse of what is likely to come. Citing liabilities of nearly a billion bucks and assets worth just $10 million, the Canadian gas driller was forced to walk into bankruptcy court and ask for protection from its creditors.

Indeed, the same companies investors were pumping their money into when gas was soaring to record highs are now failing under the weight of massive debt.

Here’s the kicker that is really going to tear the gas industry apart.

That massive debt that was picked up over the past few years doesn’t simply go away now that prices have plummeted. Drillers still have to pay their bills. That means any bit of cash flow available is direly needed.

That is how we got to where we are today, with natural gas inventories across the country at record high levels and growing by the minute.

With bills to pay, drillers simply refuse to close the valves on their producing wells. If they do, they’ll go bankrupt. But until they slow the flow, the price they get for that gas will sink lower and lower.

Eventually, prices will get so low the weak will be shaken out of the market whether they like it or not. They won’t be able to produce enough gas even to make their weekly payroll.

One of many

I could pick on dozens of small drillers that are facing gale-force headwinds, but since Rex Energy Corp. (NASDAQ:REXX) recently expanded its drilling in the Marcellus Shale formation, which is the chief cause of the current market glut, I will put their issues in the spotlight.

With $70 million in liabilities, the $330 million company is one of the better positioned drillers in its category. But much of that debt is focused on bringing the company to the Marcellus Shale region. If the move does not pay off, Rex could be forced to pay on a dud for quite some time.

Common estimates put the break-even price for Marcellus Shale drilling somewhere around $3.70 per 1,000 cubic feet of gas. Right now, drillers are able to get that price from the futures market, but the overfilled spot market is not willing to spend so much.

With nearly $1.50 difference between spot and future prices, something has got to give. With inventories about to overflow, the spot price won’t budge an inch.

The common argument throughout the market is that typical winter demand will reduce supplies and bring the markets back in equilibrium. But remember, the markets rarely go with the crowd.

The speculators have gas prices going higher over the next two months, but the facts and economic laws show prices will be going lower.

If it happens, it won’t be good for drillers. ConocoPhillips knows it. Now so do you.

Source: Natural Gas Industry Braces for Impact

There is only one state in the country that has yet to finalize its annual budget. The political situation in Pennsylvania is getting desperate. Without a spending plan in place, dozens of organizations are not getting the funding they need to survive. Across the state, angry citizens are sharpening their proverbial pitchforks.

While the desperation in Harrisburg will slow the state’s economy, the fiasco is creating a profit opportunity for a handful of companies, most notably natural gas drillers and gambling operators.

The power of a strong lobby

Buried beneath Pennsylvania’s rolling hills and ancient mountains is a massive stockpile of hard-to-reach natural gas. The Marcellus Shale formation has been a focus of the nation’s gas industry for the last decade.

Pennsylvania’s budget woes are a boon for drillers as revenue-desperate legislators lease even more of the state’s forests in an attempt to drive closed a billion-dollar shortfall. With natural gas prices near multi-year lows, the companies signing those leases are likely getting a large bargain.

Companies like Atlas Energy Resources (NYSE:ATN), Rex Energy (NASDAQ:REXX) and Anadarko (NYSE:APC) should be near the top of your watch list.

Another company worth watching, especially after this morning’s news, is Penn National Gaming (NYSE:PENN). While the company has nothing to do with pulling natural gas out of the ground, Pennsylvania’s budget desperation is going to add to the company’s top line.

When up against the wall, politicians will do just about anything to get themselves out of a nasty situation. Pennsylvania’s lawmakers allowed slot machines into the state just a few years ago in an effort to reduce property taxes.

Even though the program was a verifiable bust, the latest budget proposal expands gambling even further. Now the state will be open to various table games.

Move over Sin City

That is great news for Penn National, one of the state’s largest gaming operators. High-margin games of poker are never bad for profits – at least if you are the house.

Penn National is in the news today as word spreads of its desire to purchase Las Vegas’ Fontainebleu resort and casino. The $3 billion facility is only 70% complete as work was halted last spring after funding was eliminated.

Negotiations are still in progress, but there is a chance Penn National could get itself a bargain with the deal. If it happens, shareholders could get a double-whammy of new, high-margin revenue streams.

Put this one at the top of your watch list and watch the action closely.

No matter what happens with Pennsylvania’s budget, somebody is about to profit. Isn’t that how the government works?

Source: Put These Four Stocks on Your Watch List

Our closed recommendations (i.e., stock recommendations with specific buy and sell recommendations), we recorded average gains of 24.1%, with an average holding period of 27 days.

Some gains in particular were truly stellar…

· 50.1% on Smith & Wesson Holding Corporation (NASDAQ:SWHC)
· 87.1% on National City (NYSE:NCC) Jan 2.5 calls
· 79.6% on Boeing (NYSE:BA) Feb 55 puts
· 190% on Boeing Aug 90 calls
· 55.5% on Rex Energy Corporation (NASDAQ:REXX)

But now it’s time to throw in the towel on some duds…

The shipping sector sank with the global recession. If you are still holding any, it’s time to unload shares of:

· China COSCO Holding (PINK:CICOF)
· Diana Shipping Inc. (NYSE:DSX)

Energy explorers’ and drillers’ share prices have probed new depths of late with oil prices hovering around $50. Ditch any shares you might have of:

· Grand Tierra Energy Inc. (AMEX:GTE)
· Parker Drilling Company (NYSE:PKD)
· Royal Energy, Inc. (NASDAQ:ROYL)
· Pyramid Oil Company (AMEX:PDO)

With the delay in the production of the Nano continuing to impact stock price, let’s put the breaks on this Indian carmaker. Let go of any shares you might have of:

· Tata Motors (NYSE:TTM)

As gold fluctuates, this Canadian/Chinese gold miner is no longer a good investment. Lose any shares you might have of:

· Jinshan Gold Mines Inc. (TSE:JIN)

We suggested that readers with the stomach for risk might want to pick up shares of this troubled banker in case of a buyout. No such luck. Dump any shares you might have of:

· IndyMac Bancorp, Inc. (OTC:IDMCQ)

A great seasonal brew and a recession didn’t help this beer maker. If it’s in your portfolio, sell:

· Craft Brewers Alliance, Inc. (NASDAQ:HOOK)

Not that any of those stocks represent bad companies. Far from it! If this were a normal market environment, we’d have no problems holding on to most of them. But reason and rationality have departed from the markets… and it might take months or even years for the prices of these stocks to even get close to our original buying range.

Source: Drop these losers from your portfolio