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2011 was an up-and-down year for oil prices, but don't expect that pattern to repeat in 2012.
In the coming year, the trajectory for oil prices will be far more linear – and it's pointed up.
In fact, we could even see $150 oil by mid-summer.
There are two key reasons why:
There's not a day goes by that I don't see some variation of the theme that China is going to crash, or that somehow that nation will blindside us, and that its markets may fall 60%.
This is like saying the U.S. markets were in for a hard landing in March of 2009 after they had fallen more than 50%. Folks who bit into this argument and bailed not only sold out at the worst possible moment, but then added agony to injury by sitting on the sidelines as the markets tore 95.68% higher over the next two years.
People forget that the U.S. stock market – as measured by the Dow Jones Industrial Average using weekly data – fell more than 89% from 1929 to 1932, more than 52% from 1937 to 1942, and more recently experienced a decline of more than 53% from 2008 to 2009 – and that doesn't even account for four 40+% declines beginning in 1901, 1906, 1916, and 1973.
Each was a great buying opportunity, and following those meltdowns, our markets rose more than 371% from 1929 to 1932, more than 222% from 1949 to 1956, more than 128% from 1937 to 1942, and more than 95.68% in just over two years starting in March 2009 – one of the fastest "melt-ups" in market history.
People forget that world markets dropped 40%-80% in 1987. And as legendary investor Jim Rogers noted earlier this month, that was not the end of the secular bull market in stocks, either.
People forget that our nation endured two world wars, a depression, multiple recessions, presidential assassinations, the near complete failure of our food belt, not to mention the deadliest terrorist attacks the world has ever seen, and more.
And guess what? It's still been the best place to invest for the last 100 years.
So what if China backs off or slows down?
The Asian currency markets blew up in 1997. Mexico's market fabulously went up in smoke during the great tequila crisis of 1994. And Argentina failed to the tune of a 76.9% crash starting in 1997 only to give way to a 1,724.56% rally from 2001 to 2011.
Gold rose by more than 600% in the 1970s, then fell by 50%, which terrified investors at the time. It subsequently rose by more than 850%, something else Mr. Rogers noted in recent interviews, as have I.
China is undoubtedly going to have several hard landings in our lifetime. Despite the fact that China is thousands of years old, modern China is a mere 40 years old, if you consider its opening following the historic Nixon-Kissinger visit in 1972.
And today's China has 1.3 billion people — all of whom want to live the way you do.
It's growing by an average of 9% a year or more and has done so every year for the last 41 years straight. We've just poured an estimated $7.7 trillion into our economy and the best we can do is 2.5%. The European Union (EU) is on track for 0.2% growth in 2012 after trillions in euro backing there.
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Four months after chief executive Carol Bartz was let go, Yahoo Inc. (Nasdaq: YHOO) appointed new CEO Scott Thompson to salvage the sinking Internet company and do something Bartz couldn't – win shareholder support.
Yahoo announced yesterday (Wednesday) that Thompson, most recently president of eBay Inc.'s (Nasdaq: EBAY) PayPal unit, is taking over the lead role. Yahoo is in dire need of new strategies to increase site traffic and attract advertisers if it hopes to defend against increasing competition from tech giants Google Inc. (Nasdaq: GOOG) and Facebook Inc.
Shareholders were frustrated with the decision, however, since they were pushing for the struggling Yahoo to sell.
"It's probably a slight negative because I think the best outcome for Yahoo would be an all out takeover by Microsoft," Brett Harriss, an analyst at Gabelli & Co., told Bloomberg News. "Hiring a new CEO makes the sale of the whole company unlikely."
Thompson is the company's fourth CEO in five years. Now the pressure's on him to win over shareholders and inspire investor confidence before the share price plunges.
New Yahoo CEO Scott Thompson a "Surprising Choice"
Thompson excelled at PayPal, contributing to its expansion into online daily deals and mobile payments and increasing PayPal users to more than 100 million.
However, he has no experience with content – Yahoo's bread and butter. Yahoo Chairman Roy Bostock said Thompson's primary focus will have to be on the company's "core business" – providing content in subcategories like news, sports, and finance.
"It's a surprising choice," Ken Sena, an analyst at Evercore Partners Inc. (NYSE: EVR), told Bloomberg. "Scott has a great track record in payments and has proven an effective executive at PayPal and has major tech chops and international experience, but as a content company, which Yahoo has increasingly become, his experience is kind of lacking."
Thompson told investors he wanted to explore Yahoo's options in the mobile sector. He'll also help the company realize more value from its minority investments in Alibaba Group Holding Ltd., China's biggest e-commerce company in which it has a 40% stake worth $14 billion, and Yahoo Japan Corp., or decide if it's best to sell those assets. A sale would appease shareholders while the company regroups under Thompson's leadership.
"If they can successfully complete the Asian asset transactions, in a way that is beneficial to Yahoo shareholders, I think it will buy them some time and they'll have a chance to build for growth," Ryan Jacob, of the Jacob Funds, told Reuters.
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Silver prices soared as high as $50 an ounce last year before experiencing a brief correction that took it back below $30.
However, despite this blip, mounting inflationary pressures, a weakening dollar, and emerging market demand will see silver retest its record highs in 2012. In fact, this time around it could even climb as high as $150 an ounce.
The white metal has already gotten off to a strong start this year, with silver for March delivery surging 5.9% on Tuesday to settle at $29.57 an ounce – the biggest one-day gain in months.
And it's just getting started. So if you don't want to miss the next big bull-run, you might consider the following instructions on how to buy silver.
Like gold, silver investments can be made in a variety of forms. Let's take a look at some of the most popular forms.
Physical Silver: Physical silver can be purchased in a variety of sizes and weights, which determines its price. Most typical are 1.0 ounce silver coins, like the Austrian Silver Philharmonic, the American Silver Eagle, and the Canadian Silver Maple.
Their prices vary slightly due to differences in silver purity, with the Silver Maple being the highest at 99.99% pure. You'll pay about a 16% premium over the silver price for coins due to the cost of fabricating them.
Another popular option is the 100-ounce silver bar, which commands a 5% premium over the spot price of silver.
These coins and bars are essentially bought for their silver content and not as collectibles. If you're looking to build a silver stash – either large or small – bullion dealers may be the easiest way for investors to do so. But do your homework first, and check them out before you buy. Also, avoid paying more than the premiums I noted above for either coins or bars.
Some investors wonder if they should buy smaller denominations, like 1/20th, 1/10th, ¼, or ½ ounce (gold) coins. The thinking goes like this: If ever these coins need to be used to transact and make payments, one would want to have smaller "amounts" to carry around. That's a valid rationale. Even so, keep in mind that you'll pay a premium to the actual silver content, since each individual coin has to be fabricated. I believe that, should we ever get to that point, you could just convert a one-ounce coin or bar into a number of smaller coins, and pay the premium, or perhaps receive whatever else is being used for transactions (a new currency?) in return.
A few dealers that have an established reputation are:
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by Shah Gilani
Rampant profiteering by Congress and greedy bankers is forcing us to weigh the slings and arrows of outrageous fortune against honesty and transparency – both of which are being trampled by crony capitalists in pursuit of the almighty dollar.
What's at stake is whether gross criminal activity and reckless disregard for the public will continue to be whitewashed by regulators like the Securities and Exchange Commission (SEC), the U.S. Federal Reserve, courts, and Congress, which encourage half-baked civil fraud charges followed by non-prosecution agreements and nickel-and-dime fines.
And even more galling, guilty parties end up neither admitting nor denying wrongdoing.
Let's face it, we have allowed the SEC, the Fed, and Congress to be corralled as a matter of regulatory and legislative capture by the very crooks they are responsible for policing and protecting us from.
We are lying to ourselves if we do not believe that we are all part of this problem. It's not that most of us aren't honest. It's that we venerate money and wealth too much.
Rather than being disgusted by dishonest manipulators, liars and cheats, we excuse the less-than-obvious perpetrators as if their example of cutting corners to get ahead, as far ahead as possible, might clear a path for some of our own pursuits.
What have we become? Are we a nation of people with liberty and justice for all, or just a bunch of money grabbers stepping on each other's liberties to pursue self-centered happiness by becoming filthy rich?
Don't get me wrong. There's nothing wrong with the profit motive driving business. And there's nothing wrong with working hard and trying to make a lot of money. Those are honorable pursuits.
President Calvin Coolidge said: "The chief business of the American people is business."
But in the same speech made on January 17, 1925 our 30th president went on to say: "Of course the accumulation of wealth cannot be justified as the chief end of existence."
Tragically, the fountainhead of greed in America emanates from our own Congress. It has become obvious that the accumulation of personal wealth is their primary civic duty.
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Money Morning's Keith Fitz-Gerald joined Fox Business's Stuart Varney yesterday (Wednesday) to discuss three stocks Varney said were on "death watch" – including Eastman Kodak Co. (NYSE: EK), rumored to be on the brink of filing for bankruptcy.
Varney asked Fitz-Gerald if any of these companies presented a buy-when-it's-cheap opportunity, or if investors should steer clear.
First, Eastman Kodak Co.
The photo company is rumored to be preparing to declare bankruptcy if a plan to sell digital patents doesn't materialize over the next few weeks. The company has plunged a staggering 98% in the past five years, bringing its market cap to a measly $170 million.
"It's hard to believe this company is in danger of delisting and has become a microcap stock," said Fitz-Gerald.
Fitz-Gerald said as an investment this company should be avoided, but did not discount some day-trading opportunities for aggressive traders.
"Of these stocks, this is the one that intrigues me if I want to take a flyer – not an investment, but a flyer. The potential winner if you are a trader here is the patent lawsuit against Apple and Research in Motion."
Kodak initiated a suit against Apple Inc. (Nasdaq: AAPL) and Research in Motion Ltd. (Nasdaq: RIMM) in 2010 claiming patent infringement on imaging technology.
"But my concern is the judge has put off an opinion until September 2012; Kodak may not have the cash to survive until then," said Fitz-Gerald.
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by David Zeiler
The United States has become a net exporter of fuel for the first time in more than 60 years. That simple fact could drive oil-company profits for at least the next decade.
It's also another sign of dramatic shifts in the energy industry, with consumption declining in the United States and rising in emerging economies.
The United States exported 98 million barrels more of fuel than it imported in the first 10 months of 2011. Just a few years ago, in 2005, the country imported almost 900 million barrels of fuel.
"It looks like a trend that could stay in place for the rest of the decade," Dave Ernsberger, global director of oil at Platts, told The Wall Street Journal. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."
The United States is still the world's largest importer of crude oil, however – although even U.S. oil imports have dropped by 10% since 2006.
Actually, that's one of the reasons the United States has become a net exporter of fuel. New sources of domestic oil from the shale fields in North Dakota and Texas, as well as Canada's Athabasca oil sands, have made more crude available to U.S. refining companies.
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Money Morning's Keith Fitz-Gerald joined Fox Business's Stuart Varney this morning (Wednesday) to discuss three stocks Varney said were on "death watch" – including Eastman Kodak Co. (NYSE: EK), rumored to be on the brink of filing for bankruptcy. Watch this video to hear Fitz-Gerald's analysis of why investors should avoid Kodak, a major U.S. […]
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Iran kicked off the New Year with aggressive messages for the Western world, setting the stage for heightened political tensions and a huge oil price push in 2012.
Oil futures finished at their highest level in eight months yesterday (Tuesday), with West Texas Intermediate crude jumping 4.2% to settle at $102.96 a barrel on the on the New York Mercantile Exchange (NYMEX).
The surge came after Iran warned a U.S. aircraft carrier to stay out of the Persian Gulf. The message fueled speculation that Iran will make good on its threat to close the Strait of Hormuz to oil tankers.
An average of 14 supertankers carrying one-sixth of the world's oil shipments every day pass through the Strait, a narrow channel which the U.S. Department of Energy calls "the world's most important oil chokepoint."
With global oil demand expected to rise to a record 89.5 million barrels per day in 2012, a major disruption to oil exports from Iran would drastically affect pricing.
Even though Iran has made such threats repeatedly over the past 20 years, tighter sanctions imposed by the United States and Europe may have pushed the country to its breaking point. Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.
Now Iran is expected to trigger oil market performance similar to spring 2011, when Libya's civil war caused oil prices to spike close to $115 a barrel.
In fact, if the Iranian government made good on shutting down the Strait, oil prices would probably shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.
While we can't control Iran's actions, we can control how we prepare for whatever political and economic turmoil it inflicts. That's why it's time to buy the United States Oil Fund LP (NYSE: USO).
Iran is trying to scare the world out of imposing more sanctions against it, which drastically limit the country's ability to conduct business.
The latest sanctions, signed into law by U.S. President Barack Obama last Saturday, will make it far more difficult for refiners to buy crude oil from Iran, the world's fourth-largest oil exporter.
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by David Zeiler
U.S. natural gas companies have found a convenient new way to boost their profits – by drawing in overseas companies to help fund their development projects.
The maneuver was illustrated yesterday (Tuesday), when two large foreign companies bought big stakes in major U.S. shale projects.
French oil major Total S.A. (NYSE ADR: TOT) said it would invest $2.3 billion in Chesapeake Energy Corp.'s (NYSE: CHK) Utica Shale operation in eastern Ohio. Within hours, China Petroleum & Chemical Corp. (NYSE ADR: SNP), also known as Sinopec, announced a $2.2 billion deal to buy a 30% stake in five Devon Energy Corp. (NYSE: DVN) shale projects.
The deals follow several last year that have helped U.S. companies raise the cash they need to accelerate drilling for shale gas, which is more expensive than drilling for conventional natural gas.
"We will be seeing more of this kind of joint venture activity, bringing in foreign companies with deep pockets to offset rising development expenses for shale projects, while still allowing the U.S. company to retain control," said Money Morning Global Energy Strategist and Editor of the Oil & Energy Investor Dr. Kent Moors.
But the Chesapeake-Total deal takes this idea one step further, allowing Total to actually lease land in the Utica shale gas deposits.
"This is going to usher in a new era in how we develop the vast unconventional reserves in this country," said Moors.
Actually owning some of the shale gas deposits adds directly to the foreign company's share value, while the acceleration of the project made possible by the cash infusion boosts the U.S. company's stock.
"Having an American producer control a mega domestic project, but deflecting large chunks of the expense to a foreign company, is an ideal solution," Moors said.
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