Energy Initiatives:  History Repeating Itself?

Posted by Tim Hope on 7/2/08 10:45 am

The current spike in oil prices have policymakers calling for new initiatives in order to eventually reduce energy prices.  Sadly, past political rhetoric does not seem to offer much encouragement in terms of lasting solutions.  Note below:

“Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.”
Richard Nixon
State of the Union
January 30, 1974

“A massive program must be initiated to increase energy supply, to cut demand, and provide new standby emergency programs to achieve the independence we want by 1985. The largest part of increased oil production must come from new frontier areas on the Outer Continental Shelf and from the Naval Petroleum Reserve No. 4 in Alaska. It is the intent of this Administration to move ahead with exploration, leasing, and production on those frontier areas of the Outer Continental Shelf where the environmental risks are acceptable.”
Gerald Ford
State of the Union
January 15,1975

“The need has never been more urgent. At long last, we must have a clear, comprehensive energy policy for the United States…….. But Congress must act promptly now to complete final action on this vital energy legislation. Our Nation will then have a major conservation effort, important initiatives to develop solar power, realistic pricing based on the true value of oil, strong incentives for the production of coal and other fossil fuels in the United States and our Nation’s most massive peacetime investment in the development of synthetic fuels.”
Jimmy Carter
State of the Union
January 23, 1980

“Our progress should not be lost. We must rely on and encourage multiple forms of energy production—coal, crude oil, natural gas, solar, nuclear, synthetics—and energy conservation. The framework put in place over the last four years will enable us to do this.”
Jimmy Carter
State of the Union
January 16,1981

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Venture Capital Pipeline Drying Up

Posted by Tim Hope on 7/1/08 1:56 pm

For the first time in 30 years, no venture capital backed company managed to go public in the second quarter.  Industry observers cite a weak stock market along with a more stringent regulatory environment as produced by Sarbanes-Oxley as key reasons for the lack of IPO activity.  Obviously, the liquidity provided by the IPO market is critical in rewarding those assuming the risks of venture finance.  Hopefully the present trend is a short term anomaly and not a new capital market problem.  Click here to read more.

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Manufacturing Index Confirms Stock Market’s Narrowness

Posted by Patrick O'Connor on 7/1/08 11:01 am

Today’s national manufacturing report from the Institute for Supply Management reinforces that there are very few areas in the stock market worth being long. Most of the hot spots are benefitting from the weak dollar, like commodities.

High Frequency Economics
By Dr. Ian Shepherdson

The May ISM manufacturing index rose for the second straight month to 50.2 from 49.6, above the consensus 48.5. The manufacturing sector refuses to roll over, despite the plunge in auto sector activity, the collapse of all things related to the housing market, and the weakness in most of the regional surveys. But note that the rise in the headline index is due to gains in two of the lagging components, delivery times and inventories.

The key new orders index dipped a trivial 0.1 and, while it is off its April low of 46.5, the June reading of 49.6 is hardly a raging boom. Exports continue to lead the way, with the orders index down a point but still very strong at 58.5; thank goodness for the weak dollar. But note employment slipped to a five-year low of 3.7 from 45.5; layoffs are rising.

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Montana and North Dakota Have 3B to 4.3B Barrels of Oil

Posted by Louis Navellier on 6/30/08 1:16 pm

The Bakken Formation has received glowing press recently. Some sources are calling it the most significant opportunity for U.S. energy independence.  Is this also a significant investment opportunity?

Answer: Yes.  This is a big deal.  The oil field is found in Montana and North Dakota and it contains light, sweet crude oil that is trapped in a shale rock formation only about 150 feet wide, so horizontal drilling is necessary to exploit this resource.  According to the U.S. Geological Survey (USGS), there are 3 to 4.3 billion barrels of recoverable crude oil in the Bakken Formation, which makes it the largest land-based oil field in the lower 48 states.  This will naturally help oil service companies and is very exciting for U.S. energy independence. 

There are five publicly traded companies with interests in the Bakken Formation, but only one passed my stringent stock selection process: XTO Energy. (XTO); 1-yr Chart; Profile.  XTO is a top-10 holding in our Power Dividend portfolio.

I should also add that there are also some small Vancouver-based oil companies trying to exploit the Bakken Formation by drilling or acquiring leases in Saskatchewan, Canada.  I would rather not mention these companies, since they are saying the USGS found 400 billion barrels, which is a blatant lie and 100 times what the USGS has actually said.  Always be careful of small Canadian oil companies without proven reserves and poor financials.

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Politicians Make a Move Against Oil Speculators

Posted by Patrick O'Connor on 6/27/08 9:27 am

The U.S. House of Representatives approved a bill yesterday that targets oil speculators. The bill passed by a 402-19 vote. If the measure passes the Senate and gets signed by the president, it would require the Commodity Futures Trading Commission to consider using limits on how much a speculator can trade in oil contracts and raise margin requirements.

U.S. News & World Report

6 Myths About Oil Speculators
By Rick Newman

So now we know who's really responsible for $4 gas. Finger-pointers from Washington, the International Monetary Fund, and even Saudi Arabia no longer seem to buy the idea that the demand for oil around the world is simply growing faster than the supply, driving prices to record highs close to $140 per barrel. There must be a more nefarious reason, it seems. So now entering this drama is a villain everybody can hate: The Evil Speculator.

At recent congressional hearings, politicians and energy experts argued that speculators have artificially added $30 or more to the cost of a barrel of oil, turned oil trading into a global poker game, and doubled the price of gasoline practically overnight.

But who are these party crashers? Where did they come from? How are they doing this? And who can stop them? We'd all like to see a superhero swoop in and smite the speculators, saving Gotham from the peril of $4 gas. The only problem is, speculators aren't quite the bogeymen that politicians want us to think--and they even play an important role in the oil markets and the global economy. Some major misconceptions: Read More.

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Downgrades and Oil Price Surge Hammer Stocks

Posted by Patrick O'Connor on 6/26/08 12:19 pm

Multiple downgrades from Goldman Sachs in the automobile and brokerage sectors and another run-up in oil prices sank stocks today to new 2008 lows.

Goldman Sachs analysts cut earnings estimates for Citigroup and Merrill Lynch, downgraded U.S. brokerages to “neutral” from “attractive,” and cut its rating on General Motors to “sell.”

As a result, Citigroup shares traded down to 1998 levels, Merrill Lynch plumbed an area not seen since 2002, and GM cratered to prices not visited since 1955!  See chart.

General Motors ad from 1955

Meanwhile, comments from OPEC’s president and Libya’s national oil company pushed the price of crude above $140 for the first time ever.  OPEC’s president said he expects to see oil trade in the $150-$170 range this summer, and the head of Libya’s national oil company said it may cut production because oil supplies are ample.

The potent brew of downgrades and higher oil prices forced the Dow below 11,500 for the first time since September 2006.  See chart.

Unfortunately, the weakness accelerated into the close today, and the overall trading volume was not excessive.  Therefore, the market’s decline could deepen near-term.  We’ll need to see signs of capitulation (high volume on the downside, then a massive intra-day reversal) before we call a bottom.

In times like these, investors tend to sell everything, even their best performing stocks.  As such, be ready for buying opportunities.

One of our top performing products this year has been our Power Dividend portfolio.  It’s a total-return strategy that could have an advantage over typical long-only strategies, due to the opportunity created by Congress when it lowered the federal tax rate on dividends to 15%.  Ask your advisor if Power Dividend will blend well with your current portfolio.  If you don’t have an advisor, feel free to contact us.

FEDERAL TAX ADVICE DISCLAIMER As required by U. S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

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Consumers are an Unhappy Bunch

Posted by Patrick O'Connor on 6/24/08 1:36 pm

The Consumer Confidence Index sank 7.7 points in June to 50.4, a 16-year low, and well below the 56.0 consensus.  The details were gruesome: current conditions index fell to 64.5 from 74.2 and expectations index dropped to 41.0 from 47.3.  The latter is the lowest reading since the survey began in 1967, and is “consistent with consumption falling at a 3% y/y rate,” said Ian Shepherdson at High Frequency Economics.  The worst quarter ever was -1.5% in Q4 1974.

The bottom line is the tax rebate checks are getting spent, but they’re failing to cheer up consumers as food and gas prices go through the roof, and home prices continue to fall rapidly.  The recent declines in the stock market are not helping either.

The Fed will not raise interest rates anytime soon.

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Analysts Say Gasoline Prices Would Fall to $2 if Congress Acted

Posted by Patrick O'Connor on 6/23/08 1:33 pm

Election-year hyperbole may have hit higher highs today when four analysts told Congress that retail gasoline prices would drop to $2 and oil to $65-$70 if Congress would pass new laws aimed at speculators in the energy markets.

MarketWatch

The price of retail gasoline would fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy markets, four energy analysts told Congress on Monday. Testifying to a House Energy and Commerce Committee subcommittee, Michael Masters of Masters Capital Management said the price of crude oil would drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135. Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy agreed with Masters' assessment at the hearing. Other witnesses say speculators aren't a major factor in oil prices, however.

Tell us your opinion. Do you think limiting speculators in the energy markets would drive prices down by 50%?

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China Agrees to 96% Increase in Ore Prices

Posted by Patrick O'Connor on 6/23/08 12:51 pm

China is setting commodity prices around the world, and its agreement to a 96% increase in iron ore prices today is helping to drive some of our top-10 holdings in this sector significantly higher (see below).

Financial Times

Chinese millers agreed to pay Anglo-Australian miner Rio Tinto up to 96.5 per cent more for their ore supplies this year, the largest ever annual increase and well above the 9.5 per cent increase paid last year.

The rise suggests that demand for commodities from emerging economies remains strong, in spite of the US slowdown, fuelling fears that global inflation will continue to rise. The rise – an average 85 per cent – surpasses the record increase of 71.5 per cent agreed in 2005, when the commodities boom gathered pace.

Navellier top-10 holdings benefitting from this news:

Power Dividend Portfolio
Cleveland-Cliffs (CLF); 1-yr Chart; Profile
United States Steel (X); 1-yr Chart; Profile

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Global Energy Summit in Saudi Arabia Disappoints

Posted by Patrick O'Connor on 6/23/08 10:51 am

As expected, the energy summit in Saudi Arabia on Sunday failed to solve the issues that are driving oil prices higher.  Saudi Arabia announced a production increase of 200,000 barrels per day, but the market has already absorbed that amount.  As a result, crude prices headed higher today.

The meeting of energy ministers from 35 nations accomplished very little.  Instead, everyone defended their already-established opinions about why oil prices have spiked so dramatically: Oil-consuming nations said insufficient supply is driving prices higher, producing nations said speculators are pushing up prices, and everyone agreed that growing demand in emerging economies is a major factor.

“It is not clear that anything you heard today is going to reverse sentiment.  One thing is clear: You are not going to wake up tomorrow and find that oil prices have dropped 20 or 30 dollars,” said Raad Alkadidri, an energy analyst at PFC Energy, quoted in an article in The New York Times.

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