Gas is a Bear … For Now

By Dr. Russell McDougal

Dear Reader,

Now that we’ve wrapped up the series on the Federal Reserve and U.S. dollar bubble, I thought it would be appropriate to proceed to the next logical topic.  No, it’s not inflating hot-air balloons, but investing in natural gas (NG).

Remember, when investing in natural resources you have a choice between being a contrarian or a victim.  As a contrarian, you should not chase late-stage bull markets.  Rather, you want to position yourself for the next bull market.  In essence, you are finding the present bear market and awaiting the inevitable resource cyclicality to play out in your favor.

For a number of reasons, NG is totally unloved at the present time.  In the entire resource sector, NG stands out with its current bearish profile.  This spells major opportunity that will be an ongoing investment theme of mine in the coming months.  Here’s a vivid monthly picture of the present NG bear (from futures.tradingcharts.com):

The chartists among you should take note of the more recent reverse head and shoulders formation, which strongly suggests the bear is soon to end.

An unusual confluence of events has brought about this NG bear market.  It spiked to near $15 in late 2005 after the devastating series of hurricanes hit the Golf Coast, destroying production infrastructure in its path.  Shockingly, there were no hurricanes wreaking havoc upon this area in 2006 and the NG price is now around half of the spike high of 2005.

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It would not be wise to plan on hurricanes avoiding this area in 2007 or in future years.  Hopefully, we won’t see a repeat of 2005.

On a longer-term basis, NG discoveries peaked 35 years ago.  We consume significantly more than we discover and produce.  That means more and more imports every year just to keep up with increasing demand.  Gas is cleaner burning fuel and there is an increasing demand for it in power plants.  Of course you don’t need me telling you about the current investment rage regarding cleaner fuels and global warming.

The U.S. relies heavily on Canadian production to fill its shortages.  Approximately half of Canadian supply currently flows to the U.S.  As you’ll see in next week’s article, this key source is heading for a severe supply crimp.  I’ll present my mega-trend investing opportunities over the coming series of article.  The issue is somewhat complex, but the potential rewards should be more than worth the effort.

The U.S. also receives gas from Mexico, Venezuela, and other countries.  Unfortunately, these countries are funneling their profits into national social programs instead of growth and development of hydrocarbon production and infrastructure.  There will be no easy way out of these supply deficits.

Did you know that gas is becoming more and more a geopolitical tool?  There is a steadily expanding cooperation among global NG producers, with Russia, Iran, and Algeria spearheading the ventures.  The Russian bear has finished hibernating and is flexing her energy muscles.  Global resource wars are now raging.  See my two previous editorials, “Profiting From the Global Resource Grab” (11/22/06 and 12/6/06).

More than 70 per cent of global gas reserves are in Venezuela, Russia, Iran, Algeria, and Qatar.  You may have noticed that these countries, by and large, have strained relationships with the United States.

Think OPEC but on a more informal basis.  The West has been intentionally left out of the picture.

You must also factor in the ongoing possibilities of a Middle East war on an even larger scale.

Some suggest that Liquefied Natural Gas (LNG) will solve the shortages.  There are 40 LNG terminals in the construction planning stages, with costs ranging between $500 million and $1 billion apiece.  Refrigerated tankers also have to be built.  These LNG terminals are not expected to be on line until 2020 at the earliest.  By the way, Indonesia is a major exporter of LNG.  Not exactly comforting.

It appears the cosmos have lined up in support of higher gas prices.  The bear we seek in the overall resource bull market has been identified.  The question now becomes exactly how to profit as this plays out in the coming months and years.  Oil and gas are inherently volatile sectors.  The time to take positions is when the pendulum has swung too far in one direction.

Fortunately, thanks to the Canadian Feds, the bullish scenario mentioned in this piece is only a part of the lucrative investing picture for the natural gas sector.  Next week I’ll get more specific about the historic opportunities being presented.

Invest Resourcefully,

Rusty

P.S.  To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: Soon you'll be able to leverage Rusty's 15 years of experience trading commodity based stocks with his new commodity stock trading service. Rusty's average winner is well over 250% and regularly banks profits of 1,000% + .]

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Market Watch

The New Electric Company

By Charles Delvalle

For years, electricity companies have been known as solid and safe investments with very little growth.  But if you want to combine a solid and safe investment with industry growth in excess of 20 percent per year, all you have to do is invest in solar companies that offer maintenance contracts.

More and more, solar companies are entering into long-term contracts with major retailers such as Staples and Target to provide installation and maintenance services.  The latest entry into the solar world is Wal-Mart, which is adding an estimated 20 million-kilowatt hours of capacity to 22 of its stores and warehouses.

As these solar companies continue to book maintenance contracts, they will eventually acquire most of their revenue through these services.  In the end, solar investments will become a steady source of income, while offering far more growth than electricity companies.

One company benefiting from new maintenance deals is Evergreen Solar (ESLR).

If you enjoy IDE’s daily investing advice, you’ll definitely be interested in checking out our sister publication, Early to Rise. Each morning, you’ll get powerful wealth-building advice covering real estate, entrepreneurship, personal finance, marketing, and much more. Sign-Up for Early To Rise today!