Archives for January 2012

January 2012 - Page 6 of 11 - Money Morning - Only the News You Can Profit From

How to Profit from the "Shale Oil Bubble"

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It's true: French, Japanese, and Chinese energy companies cannot seem to get their hands on a big enough slice of U.S. shale oil deposits these days.

However, that doesn't mean this investment frenzy is evidence of a "shale oil bubble."

Instead, it's a classic sign of an investment trend – one that will continue throughout 2012 creating an opportunity for investors to profit.

Consider that in just the past two weeks:

  • French oil major Total S.A. (NYSE ADR: TOT) invested $2.3 billion in Chesapeake Energy Corp.'s (NYSE: CHK) Utica Shale operation in eastern Ohio.
  • China Petroleum & Chemical Corp. (NYSE ADR: SNP), spent $2.2 billion for a 30% stake in five Devon Energy Corp. (NYSE: DVN) shale projects.
  • And Japan's Marubeni Corp., a commodities trader, agreed to pay $1.3 billion for a stake in Hunt Oil Co.'s Eagle Ford shale property in Texas.

The Reality Behind the Shale Oil Bull Market

That's a clear sign to investors that interest in shale deposits among foreign energy companies is beginning to heat up.

And to hear the mainstream media tell it, these companies are overpaying for access to U.S. shale deposits.

In fact, they claim that has led to astronomical valuations and the formation of a "shale oil bubble."

But that that perception is actually only half right: While the value of shale deposits has skyrocketed, the reality is that the higher prices are fully justified based on the increasing demands for oil and gas.

What's more, the foreign companies that are paying top dollar for access to U.S. shale assets aren't just paying for access-they're also paying for expertise.

"Foreign majors needaccess to technology andexpertise, as well as being able to putsome portion of reserves on their books," said Money Morning Global Energy Strategist and Editor of the Oil & Energy Investor Dr. Kent Moors. "For that they are quite prepared to farm in for a minority position in development projects."

In return, U.S. energy companies get the investment dollars needed to develop costly and complex reserves.

These foreign investments also give U.S. companies the money they need to acquire more land leases and increase their odds of hitting an especially productive gas or oil reservoir known as a "sweet spot."

That, Dr. Moors says, is where the "bubble" talk comes from.

"U.S. operators cannot afford to under-commit and that has led to an inflation in land prices," Moors said. "Those prices are nowrather out of proportion toa NYMEX gas price of $2.60 per 1,000 cubic feet and hugestorage volume dueto amild winter."

Still, the demand curve for gas will eventually move up as a result of increased usage in electricity generation, replacement of crude oil in petrochemicals, and a renewed emphasis on liquefied natural gas (LNG).

These energy companies, therefore, are taking a medium-term view. In short, they believe that once demand and prices begin to rise, these higher land values will be justifiable.

So where do investors fit in?…

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Goldman Sachs Group Inc. (NYSE: GS) Earnings: How the Mighty Have Fallen...

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The Goldman Sachs Group Inc. (NYSE: GS) earnings report released before the bell today (Wednesday) is one of the most dramatic examples of how U.S. banks are struggling to return to healthy profitability and revenue growth.

Goldman Sachs earnings came in at $1.84 a share, 58% lower than the same quarter last year. Revenue fell 30% to $6.05 billion.

Though dismal, the earnings beat analysts' estimates, which were as low as 70 cents a share – an 82% drop from last year's fourth quarter and a far cry from the whopping $8.20 a share in 2009.

"It looks like nothing's working right now," Jack Kaplan, portfolio manager at Carret Asset Management, told Reuters. "They were below expectations on virtually everything on the revenue side."

This was the second-lowest quarterly revenue for Goldman Sachs since the financial crisis, as U.S. banks' earnings continue getting squeezed from a weak global economy and increased regulation.

Another Disappointing Quarter for Goldman Sachs Earnings

This was the fourth consecutive quarter of declining revenue for Goldman Sachs.

The third quarter of 2011 was especially painful, with Goldman's revenue down 47.9% from 2010's third quarter. Goldman reported a loss of $428 million, compared to a $1.74 billion profit from the year before.

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Buy, Sell or Hold: CARBO Ceramics, Inc.(NYSE: CRR) Are the Glory Days Over?

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CARBO Ceramics, Inc. (NYSE: CRR) is one of those companies quietly making a killing in today's economy.

Thanks in large part to the natural gas boom, CRR is up over 328% off of the 2009 lows.

However, how long it can maintain its status as a high-flier is another matter entirely.

In fact, I expect that CARBO's entire business model is about to come under attack, which is why now is a good time to sell.

Here's why.

CARBO is one of the world's biggest suppliers of proppant. It's one of the key ingredients in the shale oil and gas boom that is turning places like Williston, ND, into boomtowns.

The Risks Behind Horizontal Fracking

But there is risk behind these boom towns…

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It's 2007.2, and Our Next "Lehman Moment' Is Coming Fast

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It seems that my Thursday edition of Wall Street Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.

I'm sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).

In fact, I'm still bearish.

There's a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means "buy") side, and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending on Thursday.

I was talking about taking the path of least resistance, which I identified as "upward," based on equity activity through year-end and so far in 2012. You've heard the old adage "the trend is your friend." Well, that's what I was talking about. The trend has been up.

I'm bearish because I'm afraid of a European meltdown and a "hard landing" in China.

But there's a huge danger in missing what could be the beginning of a real bull market.

So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in – not yet. However, the time is coming. But, that is also the problem.

I'm fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I'll be all in, all the way, for the long-term. I'm talking about loading the boat up with stocks and commodities and enjoying a generational ride that will last for maybe 10 years, or more.

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How Super PACs Are Choosing Your Next President

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It's no secret that the rich use their money to influence the ballot, but in this year's election cycle they have a created a new, more insidious way to do it.

They are called super PACs and they are choosing your next President.

Super PACs (political action committees) have drawn attention in recent months because of their outsized influence on the Iowa caucuses and the New Hampshire primary.

Case in point: One super PAC that supports former Massachusetts governor Mitt Romney called Restore Our Future spent more than $3 million in Iowa attacking former Speaker of the House Newt Gingrich with great effect.

The month-long blitz of negative ads played a major role in knocking Gingrich from first to fourth in the polls. As late as Nov. 30, Gingrich lead in Iowa with 31% to Romney's 17% according to a New York Times/CBS poll.

However, when the caucuses were held on Jan. 3, Gingrich limped to the finish line with just 13% of the vote while Romney took 25%.

But the Romney campaign is not the only one benefiting from super PACs. Every major presidential candidate has a super PAC working on their behalf

These organizations can raise and spend unlimited amounts of money, with the only restriction being that the super PAC cannot "coordinate" with the candidate.

In a super PAC, individual donations of $500,000 to a $1 million or more are not uncommon.

"The sky's the limit,"Columbia Law Schoolcampaign-finance expert Richard Briffault told USA Today. "We are back to the pre-Watergate era of unlimited amounts of money."

Although the law does require disclosure of the donors and how much they give, the use of tax-exempt entities has created loopholes that donors can hide behind.

After a brief period when the Internet made it possible for less well-heeled candidates to mount successful grassroots fundraising campaigns by tapping large numbers of small donors, the super PACs have dramatically increased the ability of the wealthy to sway elections.

"It's just proven to be a vehicle for getting around contribution limits," Michael Malbin, a scholar at the Campaign Finance Institute, told The Washington Post. "It's made for people who've already maxed out."

Created by a 2010 Supreme Court decision, Citizens United vs. Federal Election Commission, super PACs provide what may be the most devious way yet around 40-year-old campaign finance laws designed to prevent unlimited fundraising.

In fact, the country is worse off because of the ill-conceived precaution that the candidates cannot coordinate with the super PACs.

Instead of preventing bad behavior, the new rule actually enables it.

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Prepare for Europe - "It's Going to Be Ugly"

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Standard & Poor's issued credit rating downgrades Friday for nine European countries, but the markets haven't seen any big sell offs. Did we dodge a bullet? Not according to Money Morning Capital Wave Strategist Shah Gilani, who explained to Fox Business' Stuart Varney Monday why investors shouldn't be fooled by the relatively calm market reaction. […]

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2012 Natural Gas Price Forecast: Why to Avoid the "Widow Maker"

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I've been watching natural gas for years now and find myself shaking my head lately.

The cost to buy the "clean energy" is collapsing as crude oil, a product that needs refining, stays above $100 per barrel.

In fact, this chart for natural gas is what I call a Widow Maker.

Take a look…

As you can see, it shows the price of the March 2012 NG contract over the past two years – and it's not pretty.

Why Natural Gas Prices Will Continue to Drop

The last time I wrote about natural gas for Buy, Sell or Hold was November 2010.

At the time, natural gas was about to start its most seasonally bullish period of the year. I recommended a multi-month trade with an exit by the end of the March 2011 contract.

However, this year is completely different. Natural gas has collapsed in price instead of climbing during the peak winter cold months.

While it's been a warmer than normal winter across the United States, especially in the Snow Belt, this price drop has more to do with U.S. production rising on a year-over-year basis than it does the weather.

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All You Need to Know About Iran, $200 Oil, and $6.00 Gas

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If you're unsettled by the thought of gasoline at $4.00 a gallon, brace yourself.

With tensions between Iran and the West quickly escalating, we could see gas jump to $6.00 a gallon at the pump in a matter of months.

Make no mistake about it: If Iran were to follow through on its threats to close the Strait of Hormuz, oil prices would surge as high as $200 a barrel in matter of days.

But that's just the beginning…

A wider Iranian war could throw the entire region into chaos — making $100 oil seem like a bargain.

None of this is hyperbole. In fact, these dangers are likely according to of one of world's leading energy analysts, Dr. Kent Moors.

Dr. Moors is an advisor to six of the world's top 10 oil companies, including natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. He also consults for high-level officials from the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments on all things energy related.

In short, Kent's insights are invaluable.

That's why we've given Dr. Moors a chance to address all of the concerns swirling around the energy market today.

In the interview that follows you'll learn what you really need to know about Iran, the global oil market, and most importantly, what you can do to profit…

Dr. Kent Moors on the Brewing Crisis in the Gulf

Q) Dr. Moors, how serious are the recent developments in Iran?

Moors: This is the most serious U.S.-Iranian crisis since the fall of the Shah in 1979. There's a very dangerous situation inside Iran that is only being accentuated by the oil market problems that have resulted from Western sanctions.

First off, on the Strait of Hormuz: This is the most significant oil choke point in the world. Some 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass through this narrow channel in the Persian Gulf. And while the Iranian Revolutionary Guard Navy is not large enough to blockade the Strait of Hormuz for any length of time, it could disrupt traffic.

Q) What effect would closing the Straits of Hormuz have on oil and gas prices?

Moors: Closing the strait would result in a rise in crude oil prices of between $20 and $40 a barrel in a matter of hours. Any interruption beyond 72 hours would push prices to between $150 and $200 a barrel.

As far as gas prices are concerned, the basic rule of thumb is that each $1.00 rise in a barrel of oil results in a 3.2-cent rise in a gallon of gasoline. So $200 oil would equal $6.00-plus gasoline.

Q) Why is this crisis unfolding right now?

Moors: Three major elements are causing Iran to become belligerent:

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Why You Should Ignore the Coming Debt Ceiling Debate

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Under the guise of yet another debt ceiling debate, Republicans and Democrats will spend much of the week demonizing each other on the Washington stage.

But don't be fooled. This so-called debate will be nothing more than a planned-in-advance sideshow to supply each side with 2012 election campaign fodder.

The deal put in place on Aug. 2 essentially guaranteed that the limit on the U.S. national debt would be raised to $16.4 trillion in January. That means any sound and fury that emanates from Washington this week over raising the debt limit will signify nothing.

"It's pro-forma. They already made a deal to raise the debt ceiling last time around," said Shah Gilani, Money Morning Capital Waves Strategist and author of the Wall Street Insights & Indictments newsletter. "The President has to ask for the increase — which makes it look like he caused it — and the Republicans get to display anger that "here we are again.' But it's a game they agreed to earlier."

The deal in August intentionally split the debt ceiling increase into three separate requests to set up these faux debates for public consumption.

U.S. President Barack Obama did his part on Thursday by making a formal request for the $1.2 trillion increase in the debt limit.

That was the cue for Republicans in the House of Representatives to draft a "resolution of disapproval" which they will debate and vote on this week. And given that the GOP has a majority in the House, the resolution is guaranteed to pass.

In this play's next scene, the Democratic-controlled Senate rejects the resolution, which allows President Obama's requested debt ceiling increase to take effect by default – just as all sides envisioned back in August.

And even if a few rebellious Democratic Senators vote with their Republican colleagues, President Obama can veto the resolution. With the odds of Congress overriding a veto near zero, the debt ceiling increase is pretty much a lock.

But the show must go on.

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