The first was an unprecedented $41 billion liquefied natural gas (LNG) deal with Australia, which was announced last week. The deal calls for PetroChina Co. Ltd. (NYSE: PTR) – Asia’s largest oil and gas company – to buy 2.25 million tons per year of liquefied natural gas (LNG) from the Gorgon field in Western Australia over a period of 20 years.

It is the largest deal ever brokered between the two nations.

The Gorgon field has yet to be developed but is considered to be a key global resource and an economic boon for Australia.

“The Gorgon Project is globally and nationally significant with a resource base of more than 40 trillion cubic feet of gas and an estimated economic life of at least 40 years from the time of start-up,” said Chevron Australia Managing Director, Roy Krzywosinski.

“Furthermore, the Gorgon Project is Australia’s largest single resource project and is set to deliver significant economic benefits and create around 10,000 indirect and direct jobs during peak construction.”

Chevron Corp. (NYSE: CVX) owns and operates 50% of the field.

Yet this is just one of the mega-deals signed between China and Australia. China was Australia’s second largest merchandise trade partner in 2008 with two-way trade of $56.3 billion (A$67.74 billion). Australian exports to China grew 37% in 2008 from the previous year to $27 billion (A$32.48 billion) and comprised chiefly of raw and lightly processed farm, mineral and energy products.

“China needs us, we need China,” said Australian Trade Minister Simon Crean.

Of course, China’s demand for natural gas and other resources is growing so fast that it needs more than Australia.  That’s why the Red Dragon recently signed a $5.6 billion deal with a consortium of energy companies operating off the coast of Myanmar.

The consortium, led by South Korea’s Daewoo International Corp., will supply China National United Oil Corp. (CNUOC) with 500 million cubic feet of natural gas a year from 2013 to 2043. The supply, which will come from Myanmar’s A-1 and A-3 offshore blocks, amounts to about 7% of China’s current gas consumption, Reuters reported.

The consortium – which also includes India’s Oil and Natural Gas Corp., Myanmar Oil & Gas Enterprise, India’s GAIL Ltd., and Korea Gas Corp. – will invest a total of $5.6 billion in the project and be responsible for production and offshore pipeline transportation.

Land transportation will be jointly managed with CNUOC. The two parties also plan to build oil and gas pipelines through Myanmar and into China’s southwestern Yunnan province, Reuters reported.

Few Western countries, or Western companies do business with Myanmar, which has been heavily criticized for its human rights violations. The military junta that controls the country is considered one of the most repressive and brutal regimes in the world today. Forced labor, child labor, human trafficking, and instances of sexual abuse are widespread.

However, China, which has itself been a target among human rights watchdogs, chooses to overlook these discretions, preferring instead to focus on Myanmar’s resources. And in its defense, China is rightly concerned about securing enough raw materials to support its booming economy and a population of about 1.3 billion people.

Natural gas, for instance, accounts for just 3% of China’s total energy needs, but its use is expected to grow rapidly as energy demand increases. China currently consumes about 7.3 billion cubic feet per day, but that is expected to grow at a 10% compound annual rate to 18 billion cubic feet per day by 2020, according to Bernstein Research.

And China is doing the right thing by securing long-term supplies of natural gas now, while prices are low and supplies are high. It’s taken similar action with other commodities over the past year, stocking up on large amounts oil, copper, and iron ore as prices swooned.

China Gases Up While Prices Are Low

Natural gas prices yesterday (Thursday) fell to levels not seen since 2002 after the U.S. Energy Department said the amount of gas in storage hit a record high for this time of year.

Natural gas stockpiles rose by 52 billion cubic feet to about 3.2 trillion cubic feet in the week ended Aug. 21 –21% above year ago levels. Levels are now so high that some experts believe the United States will run out of storage capacity before winter begins.

“We have never been here before in terms of what to expect when storage gets this high,” Aubrey K. McClendon, Chief Executive Officer of Chesapeake Energy Corp. (NYSE: CHK), told the New York Times. “It’s like a balloon; there comes a point where you can’t blow any more air into it.”

Natural gas prices tumbled more than 6% to $2.725 per 1,000 cubic feet of gas on the New York Mercantile Exchange (NYMEX), a price not seen since Aug. 7 2002, The Associated Press reported.

However, now that gas prices have tumbled roughly 80% from last year’s high above $13, some investors believe the market is bottoming out – or at the very least, significantly below its fair value.

Chesapeake Energy stock has risen nearly 8% in the past month, despite plunging prices and mounting inventories. Devon Energy Corp. (NYSE: DVN) is up about a 5.5%.

“The perception is that gas has finally gotten to its lowest point, so people are buying exploration and production stocks,” Marshall Adkins, energy analyst at Raymond James Financial Inc. (NYSE: RJF), told Reuters.

However, Adkins does not expect a rebound to come any time soon. His firm expects natural gas prices to fall below $2.50 per thousand cubic feet in the months ahead as an inventory overhang overshadows gas’ attractive price.

Still, there’s good reason to believe gas prices will have a strong rally in early 2010. To begin with, gas companies are slashing production exploration in dramatic fashion.

Newfield Exploration Company, for instance, has announced the plans to voluntarily curtail about 2.5 billion of cubic feet equivalent of gas of its third quarter of 2009 production in response to the recent lull in prices.

U.S. producers have cut the number of rigs drilling for new gas by more than half since Sept. 2008. Oil-services company Baker Hughes Inc. (NYSE: BHI) recently reported that 688 gas rigs were active in the United States, down about 56% from one year ago.

“We think the decline curve for production will be fairly steep because of the big drop in drilling,” Rich Howard, manager of the Prospector Capital Appreciation fund, told CNNMoney.

Source: China Landing Natural Gas Deals as Prices Plummet

In fact, some stock market mavens are even starting to bandy about the “E” word – exuberance – and say it’s time to adopt a highly defensive position, or to even take some money off the table.

“Awhile back, I said that fair value on the Dow Jones Industrial Average was 7,800 – and that was if the economy was operating efficiently,” said Money Morning Contributing Editor Martin Hutchinson, a former international investment banker who now operates the Permanent Wealth Investor trading service – and who was recently cited by Slate magazine for having called the stock-market bottom. “But the economy isn’t operating efficiently. We’re rolling up huge deficits, and are rolling out huge stimulus packages. Those will both be highly inflationary. I’d say that – right now – fair value on the Dow was about 6,500 to 7,000, though it could easily bottom out at around 5,500.”

The closely watched Dow zoomed 214 points, or 2.6%, on Monday to close at 8,426, although it dropped modest 16.09 points to close at 8,410.65 yesterday (Tuesday).

U.S. stock prices have been on a two-month roll. On Monday, the Standard & Poor’s 500 Index gained 29 points, or 3.4%, to close at 907, a four-month high. That broad index, used by investing professionals to benchmark the market, opened the year at 903.25. It closed yesterday at 903.8, meaning it’s actually in positive territory for the year.

The tech-heavy Nasdaq Composite Index jumped 44 points, or 2.6% Monday, to close at 1,763. Even with yesterday’s 0.54% decline, the Nasdaq is up 11.0% for the year.

It’s not just the fact that the market has bounced back that has Hutchinson and some other investors concerned – it’s the forcefulness with which stock prices have escalated. After closing at a 12-year low on March 9, the S&P 500 index has rallied about 34%.

Investors have become increasingly optimistic that the U.S. government finally has a handle on the credit crunch and the financial crisis that’s grown out of that nightmare of bad debt and parsimonious lending. There’s a belief that the U.S. housing crisis has reached bottom. Even Money Morning’s Hutchinson says that the rate of decline in the U.S. economy has almost certainly slowed substantially, meaning a bottom may not be far away.

But a bottoming out in the economy doesn’t necessarily mean the U.S. economy’s many problems are at an end, Hutchinson says. With all the stimulus money flowing through the economy, inflation is certain to be a problem, meaning interest rates have to increase, Hutchinson says.

For instance, during the 1990s, inflation averaged 2.9% and the 10-year Treasury bond averaged 6.67%. The gross domestic product (GDP) deflator inflation index was at 2.9% for the first quarter of this year, and yet the 10-yearTreasury was trading at 3.15%, Hutchinson says. That means interest rates have to increase – a lot, a process that’s certain to blunt an economic recovery, he believes.

And if that happens, U.S. stock prices – ahead of themselves already – will drop back, as well.

It was back in mid-October when Hutchinson said the fair-value level of the Dow was 7,800. To drop back to that fair-weather/fair-value target of 7,800 from its current level, the 30-stock, blue-chip index would need to fall 7.0%

That’s more than just a modest decline, and would clearly be painful in its own right. But the Dow would have to drop an alarming 17% to 23% to reach Hutchinson’s foul-weather/fair-value range of 6,500 to 7,000, and a downright sickening 35% to hit his possible market bottom of 5,500.

And Hutchinson isn’t the only investment expert preaching caution.

Take Pacific Investment Management Company LLC’s (PIMCO) fixed-income guru Bill Gross, who says investors are far too optimistic about the U.S. economy’s near-term prospects.

“Do not be deceived by the euphoric sightings of ‘green shoots’ and the claims for new bull markets in a multitude of asset classes,” Gross wrote in PIMCO’s May outlook. “Stable and secure income is still the order of the day.”

In theory, the stock market is forward-looking, meaning stock prices reflect a future – three to six months down the road – that is obviously unknown to investors. The hard-charging rally of U.S. stocks in recent weeks has prompted an even stronger belief that the economic rebound is at hand, and that the recession that started in December 2007 may soon be over – if it isn’t already.

That doesn’t mean there are no profit opportunities available. Plenty remain. But it does mean investors need to invest cautiously, and may need to make some profit plays more suitable for bear-market environment – just in case.

Some “smart-money” strategists say that it’s time to take money off of the table, MarketWatch.com reported. In a recent research call, for instance, Raymond James Financial Inc. (NYSE: RJF) market strategist Jeffrey Saut says he has put his trading account all into cash, and has taken defensive positions (typically those that are designed to rise in price if the market falls) in case of a correction in stock prices.

“We have made a lot of money over the last eight weeks and continue to think the trick from here will be to keep that money,” Saut wrote in that research call.

Converting your profits to cash is one way to play this uncertain stretch, Hutchinson says. But there are several other strategies that will position you to continue generating profits, while also hedging against potential market unpleasantness. In his Permanent Wealth Investor trading service, Hutchinson says to:

• Buy high-yielding stocks for both income and capital gains.
• Buy gold both to profit, and to hedge against the inflation that’s certain to arise from the big government spending programs.
• And buy so-called “inverse funds,” to hedge and to profit. One such suggestion is the ProShares UltraShort 20+ Year Treasury Fund (NYSE: TBT), which seeks investment results that correspond to twice the inverse daily performance of the Barclays Capital 20+ Year U.S. Treasury Index.

A new bear market isn’t a foregone conclusion, either. U.S. Federal Reserve Chairman Ben S. Bernanke says the U.S. recession could end this year, and says that economic activity could pick up substantially in the year’s second half.

And there’s also an interesting wildcard at play. It’s a bit of anecdotal evidence that has proven bothersome to some investing professionals because it doesn’t fit with the way market rallies typically play out.

In most stock-market rallies, the initial catalyst comes from the big institutional players, who ignite the upturn. As the media drumbeat of the rally grows stronger and louder, retail investors start to join in – a little at a time at first, but then in growing intensity. By the time the main group of retail investors make the move, however, it’s usually almost time for the institutional players to cash out, since the trend they invested to profit from is typically almost played out, MarketWatch reported.

That’s pretty much what happened during the dot-com bubble, and is why individual investors took it on the chin.

This time around, however, it’s been different.

But this time around, anecdotal evidence – such as trading data from online brokers E *Trade Financial Corp. (Nasdaq: ETFC) trade and TD Ameritrade Holding Corp. (Nasdaq: AMTD) seems to suggest that it’s been the retail-investing crowd that’s driven this rally from the very beginning, while institutions have stayed on sidelines, cash in hand, Barry Ritholtz, chief executive officer and the director of equity research at Fusion IQ, told MarketWatch.

“The ‘dumb’ retail money is leading the gains,” Ritholtz said.

That could end up being good news for the stock market: Institutional investors, afraid to have missed the rally, might step in more forcefully, fueling a new-and-longer leg of the current bull market for U.S. stock prices.

If it turns out that this is just a “bear-market rally,” however, bad economic news will halt the rally and cause investors to punt.

The bottom line: Over the long haul, economic reality will guide stock prices, Ritholtz says.

“In this type of environment, the market is guilty until proven innocent,” he said. “We have to assume this remains a bear market until we see a more normalized economy, a recovery in some employment measures, and real estate to actually start improving – not just to stop free falling.”

Source: Is the Stock Market Rally For Real?

This pairing is great for stability. Commercial banks take deposits and make loans. They have a capital base to offset the riskier stuff that goes on in investment banks that underwrite securities and engage in trading.

The pairing also brings these investment banks within commercial banks and insurance companies under Federal Reserve regulation. That’s very good. The Fed sets capital requirements that limit how much risk a bank can take. Had these rules, or even some slightly more generous version, applied to investment banks like Lehman Brothers (OTC:LEHMQ), they would not have taken on so much risk that they destroyed themselves in the process.

Don’t count me among the totally anti-regulation crowd. It’s true that sometimes government interference strikes me as particularly stupid. The current ban on short selling is a perfect case in point. But the day-to-day guidelines that keep rogue traders within bounds are useful.

It comes down to this: when a business is so big that the government needs to step in if it fails, then that business should be monitored and held to sensible standards before it takes itself to the destruction point.

Leaving a business alone to do anything it wants and get into as much trouble as it desires then standing ready to bail it out is about as wise as handing your 16-year-old hothead the keys to the Porsche and your credit card and telling him there’s no curfew, either.

Source: The Keys to the Porsche Should Come with Limits

Analysts had expected the Santa Clara, Calif. chip giant to report earnings of 26 cents a share on revenue of $9.3 billion, according to several earnings-estimate surveys.

Third-quarter sales will range between $10 billion and $10.6 billion – well above the estimate of $10.01 billion reported by Bloomberg News. It also represents a rebound from earlier in the year, when Intel disappointed investors.

Sales of computer microprocessors were strong worldwide – at a time when analysts had become increasingly concerned about how the worldwide financial crisis would affect the high-tech industry, and especially computers.

Instead, Intel Chief Executive Paul Otellini said he’s seeing tremendous global demand for computer chips, has seen no fallout from the housing-led slowdown of the U.S. economy, and now expects that shipments of more-profitable laptop chips to overtake desktop processors for the first time ever this year.

“Intel had another strong quarter with revenue at the high end of expectations and earnings up substantially year over year,” Otellini said. “As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe.”

Hans Mosesmann, a New York-based analyst for Raymond James & Associates (RJF), told Bloomberg News that investors should buy Intel shares, stating that “if the slowdown were that pervasive, Intel would already have seen it.”

Analyst Roger Kay of Endpoint Technologies Associates told MarketWatch.com that Intel had “a solid quarter.”

“Intel has product momentum now, widening the gap with competitors,” Kay said. “They’re stronger in notebooks and the market is shifting their way … I would think these results would tend to steady some of the volatility in the tech sector.”

Source: Intel Surprises Wall Street With Record Second Quarter, Strong Global Outlook for Remainder of Year

Editors Note:  This article was written by the Staff of Money Morning