February 2012 - Money Morning - Only the News You Can Profit From
- Can Fed Beige Book, Recent U.S. Economic Data Support the Dow Above 13000?
- Dow Closed Above 13000: What Next?
Hydrokinetic Power is the Next Wave in Cheap Energy
In an era of cheap capital, emerging technology companies could provide investors the biggest bang for the buck we've seen in years.
The key is finding a market that already has billions of dollars in pent up demand – like cheap energy.
Of all the cheap alternatives available to us today, I'm most excited by hydrokinetic power systems for the simple reason that the oceans contain enough energy to potentially support more than 50% of US demand alone, according to the US Department of Energy.
In case you are not familiar with the term, hydrokinetic systems produce power from the water's kinetic energy. It's quite literally power from the motion in the ocean.
Critics charge there are limits involved because the technology we need to make, transmit and store wave-based energy is primitive and prohibitively expensive.
And they're right… it is, or at least has been to date.
That's why despite years of effort and billions of dollars in government-sponsored financing, there are a mere 5 megawatts of wave-generated energy being created worldwide.
According to Forbes Magazine, that's only enough to light 4,000 U.S. homes.
Yet studies estimate that two-thirds of the world's economically feasible hydropower has yet to be exploited. Perhaps not surprisingly, much of this untapped energy is concentrated in South America, Asia and Africa.
That's my kind of opportunity – but it will require a sea change in our thinking (pun absolutely intended).
The Rising Tide in Hydrokinetic Power
That's because traditional "alternative" power choices tend to evolve in terms of how applications like solar, hydro, thermal and gas production ties into the grid. As such, they're dependent on environmental variables that come and go.
On the other hand, hydrokinetic systems really are the grid. By placing turbines, bobbers and impellers into large bodies of water, they become part of the very system they're tapping into.
And it's a whopper of a system.
Gas Prices Spike: Ease the Pain of $5.00 Gas with UGA, USO, COP, XLE
February is typically a month when gas prices recede – but not this year.
Average gas prices currently are about $3.69 according to AAA's Daily Fuel Gauge Report. That's higher than the average for the whole of 2011, which was the priciest year ever for gasoline.
The average price for U.S. gas has climbed more than 10% in just the past two months. This suggests a trajectory that could produce a spike of 60 cents a gallon or more by May.
"I actually believe that prices will be moving higher than 60 cents a gallon on average," Money Morning energy expert Dr. Kent Moors recently told Executive Editor William Patalon III. "By mid-summer, in fact, we could see $5 a gallon being reached in certain regions of the U.S. market."
Here's why we could be facing the most painful year at the pump – and how you can offset record-breaking gasoline costs.
What's Driving U.S. Gas Prices to $5 a Gallon
Usually, higher gas prices result from low supply and high demand, but that's not the case this year. Even with consumption growing in emerging markets like China and India, the current surge in gas prices isn't based on increased demand for crude oil.
In fact, according to Tom Kloza, chief oil analyst for the Oil Price Information Service (OPIS), demand for oil is at its lowest point since April 1997.
Instead, there are a new set of factors pushing U.S. gas prices higher, including:
The Trend is Your Best "Friend" in the Stock Market
Everybody's got an opinion about the stock market.
That doesn't make it easy for anyone who listens to anyone else, or worse, listens to everyone else, to get a clear picture about what's really out there.
Of course, I have an opinion too. And of course, I'm going to tell you what it is.
But first, let me say this about that.
I never start with an opinion. I end up with an opinion, after trying not to have one.
That means I know I don't know what's going to happen, so I have to look at what's really going on. And I get to my opinion by pulling back further and further until I can't see anything small.
I pull back as far as I can because I want the big picture.
And the big picture is all about the major trend. If you're on the right side of the major trend, you can't get killed. You might take a few hits, here and there, but you make money. And while making money is great, it isn't everything.
There's something more, something bigger than making money…
It is not losing money, as in, not getting hit so hard that you're hurting real bad, or that you get killed and are out of the game totally.
That's never happened to me. I always make money, every year.
It's not that I don't have losing trades; I have plenty of those. But I make money because I mostly ride the big trends.
Usually, my losing trades are my more speculative trades, where I try and jump on a smaller counter-trend within the major trend.
For example, I see the big trend as positive, so I'm mostly long (I'm buying), but I might think a stock is prone to a sell-off, so I'll short it. Sometimes that's a huge winner, but sometimes I will lose on a play that is counter to the trend because the major trend eventually overwhelms everything else.
My point here is this…
The trend is your friend, but within the major trend there can be opportunities riding mini-trends going in the opposite direction. Just don't get greedy on those plays; the major trend will eventually consume most smaller counter-trending plays.
So, here's what I see, and here's my opinion about what I see.
Finally, TransCanada Corp. (NYSE: TRP) Will Build the Keystone Oil Pipeline – Sort of
Turns out the Keystone oil pipeline will be built – at least, part of it.
TransCanada Corp. (NYSE: TRP), the Calgary-based energy company trying to get the project approved, said yesterday (Monday) it would seek immediate approval to start building the southern half of the pipeline that runs from Oklahoma to Texas. That segment doesn't need a presidential permit because it doesn't cross a U.S. border.
TransCanada said the southern portion of the Keystone oil pipeline will allow Midwest oil to reach Gulf Coast refineries. There is currently a glut of oil produced in that region.
"Gulf Coast refineries can then access lower-cost domestic production and avoid paying a premium to foreign oil producers," TransCanada CEO Russ Girling said Monday.
The pipeline will carry light crude oil produced in North Dakota, Montana, Kansas, Oklahoma, and Texas. It will cost $2.3 billion and be completed in 2013. It will also create about 4,000 construction and support jobs.
TransCanada also said it would reapply for the full Keystone oil pipeline construction – a hot button issue in this election year.
Why President Obama Rejected the Keystone Oil Pipeline
Obama's Plan to Tax Dividends is Wrong, It's Time to End Double Taxation
President Obama is outraged again.
These days he's bothered by the fact that dividends are taxed at only 15%.
And to make people like Warren Buffett happy he wants to make dividends fully taxable at a top rate of 39.6% (plus state and local taxes.)
At the same time, he's also talking about reducing the top corporate tax rate from 35% to 28%.
As dividend-earning shareholders, that means we must unite and also demand an end to subsidizing corporate fat cats by having our dividends taxed twice!
Even if the corporate tax rate is reduced to 28%, our dividends – if subjected to the full income tax – will be taxed at a much higher rate than any other form of income.
First at 28% on the corporate level, then at another 39.6% for individuals, making the total tax rate on dividends 1-(0.72×0.604) or 56.5%!
That's ridiculous, and totally unfair.
The Double Taxation of Dividends is Wrong
It's also very damaging to our economic system-even though modern financial theory has downgraded the importance of dividends.
In reality, this "theory" is quite wrong.
That's because the return on our investments is based on the streams of cash corporations can be made to pay. In a business that is not liquidating itself, most of that cash comes in the form of dividends.
Companies that do not pay them can defer their shareholders' returns ad infinitum.
For their investors, the buying and selling of these shares in the market is simply a series of attempts to profit from the "greater fool theory."
Take Apple Inc. (Nasdaq: AAPL) for example.
What you don't know is that Apple's $100 billion in cash is actually doing a great disservice to its shareholders.
After all, study after study has confirmed what Harvard professor Mike Jensen told us in 1986: A pile of cash is damaging to the company that has it.
It's counter-intuitive but it's true.
Is Google (Nasdaq: GOOG) Plotting a Yahoo (Nasdaq: YHOO) Takeover?
After all, it wouldn't be the first time Google considered the deal.
In October, Google talked to at least two private-equity firms about helping them finance a deal to buy Yahoo Inc.'s core business, a person familiar with the matter told The Wall Street Journal.
Occidental Petroleum Corp. (NYSE: OXY): The Best Way to Profit From the Monterey Shale
It has been a long time since California seen a profit opportunity like this.
The state's Monterey Shale formation may hold as much as 500 billionbarrels of oil making it more valuable than the gold rush of 1848.
With oil prices expected to hit $150, if not $200 a barrel this year that means the profit potential is limitless.
After all, peak oil isn't a myth – it's a reality.
Traditional oil production is plateauing, while demand in emerging markets continues to rapidly increase.
Meanwhile, turmoil in the Middle East has threatened supplies even further. And the war with Iraq didn't end up being the energy bonanza many thought it would.
And now the Arab Spring and tensions in Iran have escalated to the extent that military intervention there seems to be a foregone conclusion.
That's why the Monterey Shale – a rib-shaped formation that extends from Northern California down through the Los Angeles area and then offshore to outlying islands – is getting so much attention.
And unlike other shale plays in the United States, the Monterey is primarily oil, not gas.
That means Monterey shale does not require hydraulic fracturing, which has come under fire from environmentalists.
It also means companies can extract much of the oil using simple vertical wells, rather than the more expensive horizontal drilling needed for shale gas plays. Some horizontal drilling will be used, but it is not required in all fields, greatly reducing operating expenses.
In fact, in large parts of the formation, production costs are less than $10 a barrel.
Think about what that means for profit margins with crude prices currently near $110 a barrel.
So how can investors profit?
Who is Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) Replacement?
Warren Buffett fans are buzzing with one burning question after the legendary investor released his annual shareholder letter on Saturday: Who is Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) replacement?
The Board is "enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire," Buffett said in the letter, without identifying the person. "When a transfer of responsibility is required, it will be seamless, and Berkshire's prospects will remain bright."
Buffett noted there were two "superb" back-up candidates in place as well.
Even though Buffett didn't share the details with investors, this is the clearest signal he's given that a specific strategy has been outlined for a post-Buffett Berkshire.
"It's more of a commitment, clearly," Alice Schroeder, author of "The Snowball, Warren Buffett and the Business of Life," told The New York Times. "This is not the if-I-get-hit-by-a-bus plan. This is the succession plan."
Some of Buffett's big-name employees are already slated for other positions, leaving just a handful of big wigs left to take the CEO spot.