Bruce Vanderveen's  Instablog

Aside from a few puritanical malcontents, we all love coffee and chocolate. I know many of my friends prefer coffee over just about anything. The same, pretty much might be said for chocolate. You might call them recession proof necessities

Surprisingly, both coffee and chocolate are actually good for you (in moderation of course). They may even help you live longer.

Coffee (Coffea arabica)

The coffee story, shrouded in myths and legends, claims an Ethiopian sheep herder named Kaldi noticed his sheep getting hyperactive after eating some red berries. Trying some himself, he soon found himself in a frenzy. Local monks disapproved - at least until they found it kept them awake longer for prayers. Things have been astir ever since.

Coffee bean picking is mostly by hand and the industry provides over 20 million jobs worldwide - a real boost for local economies.

Three Publicly Traded Coffee Companies

Starbucks (SBUX) is a $42 billion corporation. Perking along nicely, the company is near its 52 week high. Its stock, however, may now be somewhat frothy and ripe for a spill.

Green Mountain (GMCR) is a $7.2 billion roasting company which is currently under SEC investigation for accounting irregularities. It's in a brew of trouble right now. The stock is down over the last 6 months. Is it a bargain? Possibly.

Caribou (CBOU), the smallest of the three companies mentioned here - market cap $390 million - is arguably the best investment. The company has $2 cash per share, no debt, and has shown steady growth.

Chocolate (Theobroma cacao)

Chocolate has been synonymous with romance since the 16th century. Europeans added cane sugar and milk to the bitter, fermented beans. The result has been pure delight. Saint Valentine's Day, actually just about any day, is a splendid time for chocolate.

Originally from tropical America, 2/3 of cacao plantations are in Africa. Ivory Coast and Ghana lead in exports.

Two Established "Chocolate Companies"

Hershey (HSY) and Tootsie Roll Industries (TR) are both well established publicly traded companies. I love Hershey's Special Dark Chocolate with Almonds - delightful. Tootsie, a conservatively run company with practically no debt, has been around since 1896. The company has been paying dividends since 1943 (current yield 1.34%) and Forbes has a recent favorable write-up on it.

Pure Commodity Investments

You can invest in the pure commodities through ETNs. Coffee is tracked with iPath's (JO) and (CAFE), chocolate with iPath's (NIB) and (CHOC). Keep in mind, however that these ETNs are thinly traded. Coffee futures are down 30% in the past year, cocoa's is down 25% (see here).

Is Anything More Reliable Than Coffee or Chocolate?

Are you worried about paper money becoming worthless? Here's an idea: Stock up on coffee or cacao beans. Both have been used as currencies in the past. No inflationary debasement. An added bonus: You can eat or drink them - try that with gold or silver.

Deflation make strike. Central Bank printing presses may roar. Inflation may rage. Nations may totter. It doesn't matter: We will still be drinking coffee and indulging chocolate. Enjoy!

Disclaimer: This article is informative only - not personalized advice. Do your own research and due diligence before investing

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

What is the hottest oil play in North America? Steve Antry, CEO of privately held Eagle Energy says it is the Mississippian limestone of northern Oklahoma and southern Kansas. This formation is an old field - Phillips Petroleum was in the area 100 years ago. What is new is the large amounts of remaining oil now being collected thanks to horizontal drilling and hydraulic fracking.

An American Association of Petroleum Geologists write-up claims Mississippian wells cost less than $2.5 million each but can produce hundreds of barrels of oil equivalent a day and have an estimated ultimate recovery of up to 400,000 barrels per-well .

Everyone knew oil was there. Trouble was, in the past high water content and complex geology made finding it a hit or miss proposition. Now, with horizontal drilling and multistage fracking, dry holes are rare.

As I noted in an earlier article, SandRidge Energy (SD) has staked out a major position in the formation. Chesapeake Energy (CHK), Range Resources (RRC), and Devon Energy (DVN) also have major holdings.

Here, I will briefly profile 3 micro caps which have acreage in the Mississippi Lime. These companies are very speculative so do considerable due diligence before investing.

Equal Energy (EQU)

Equal Energy has a market capitalization near $132 million and has approximately 20,000 net acres in the Mississippi Lime. Current share price is under $4. Yahoo Finance shows revenue at $4.03/share, book value of $7.03/share, and total debt at $223 million.

In addition to its Mississippi acreage Equal has a geographically diverse array of assets which include Canadian oil and liquids rich gas from Oklahoma's Hunton formation. These legacy assets seem to be undervalued (stock price is 55% of book value). Its not yet drilled Mississippian acreage could potentially be very profitable.

Equal has a troubled past, a past - which may now be behind it. Seeking Alpha author and investor Nawar Alsaadi has written an article which goes further into the company's history and assets.

Osage Exploration (OEDV.OB)

This small, debt free company has a market capitalization of $32 million. Current share price is around $.68. Yahoo Finance shows revenue at $.06/share and a book Value of $.09/share.

Osage is partnering in the Mississippi Lime with Slawson Exploration and U.S. Energy Development Corporation (USEDC) - both well established companies. Slawson has drilled over 3500 wells in 10 states. Osage is financing drilling by granting Slawson a 42% interest and USEDC a 30% interest. Osage retains a 25% non-working interest for a net 5,000 acres. The partners recently spudded their first two horizontal wells in the Mississippian.

Osage is a nearly pure play (It also has interests in Columbia.) on the Mississippi Lime. The focus now, however, is on the Mississippian. Osage's stock, which sold for $.08 a year ago, has gone up nearly 10 fold.

American Petro-Hunter (AAPH.OB)

American Petro-Hunter has a market capitalization around $6.8 million and a share price of $.24. Yahoo Finance shows revenue of $.01/share and book value at -$.08/share. Total debt is $3.5 million.

According to its website American Petro-hunter has nearly 6,000 acres of land holdings in the Mississippian (I could not find net holdings.) Its third well has just entered the completion phase. American Petro-hunter also has other producing fields in Oklahoma and Kansas.

Summary

All the above companies have high hopes for their Mississippi acreage. Equal Energy is the most diversified and established. Osage Exploration and American Petro-Hunter have pretty much staked their future to the Mississippi Lime and may thrive or falter depending on production results there.

Is the Mississippi Lime the hottest play in the U.S? Well, that's debatable. What does seem obvious though, is how productive horizontal drilling and multistage fracking have become. Not only are shales like the Bakken being successfully fracked but now we also have older, carbonate fields such as the Mississippi Lime roaring back to life. This all bodes well for future U.S. oil production.

Disclaimer: This article is informative only - not buy or sell advice. Do your own research and due diligence before investing.

Disclosure: I am long EQU.

Since it's a new year, I worked up my courage, and again checked the latest figures from the U.S. National Debt Clock. It's depressing. Total U.S. National debt is approaching $15.2 trillion - now over 100% of U.S. GDP. Spending is an astounding 56% higher than tax revenue.

It's difficult to relate to those, up to 15 digit, vertigo inducing, blinking red and green numbers. One commentator called them: "monopoly money" - somehow not real. Billions, trillions .... Who can comprehend it all?

What can one do about government deficits and debt anyway? You can rail against politicians, perhaps save a little here, spend a little less there. Then it's back to everyday life, trusting the government to manage things. Since just about everyone benefits from one or more government programs criticism is muted.

Below is a comparison, not new, but bears repeating as it's something everyone can relate to. Take eight zeros off the U.S. Debt Clock figures and pretend it's a family:

• Family's annual spending: $36,240
• Family's annual income: $23,200
• Annual new debt: $13,040 (to pay for spending above and beyond income)
• Total family debt: $142,710 (and rising nearly to 10% a year)

Of course, we know the above comparison isn't quite valid. Unlike the U.S. Government, our theoretical family doesn't have a printing press in the basement. Just think how nice that would be: A $2,000 medical bill? No problem, just print up 20 crisp $100's. Problem solved! 

The U.S. Federal Reserve is trying - but mostly failing - to "grow" the U.S. economy out of this "Greater Recession."  Interest rates are kept near zero. The payroll tax cut gets extended. This approach has worked in the past, but now - over 3 years after the 2008 crash - we are still in a quagmire of high  unemployment and economic gloom.

What if the Government Balanced Its Budget? 

Can you imagine the shock waves if U.S. Federal spending was reduced by over 1/3 to balance the budget? Actually, spending cuts would have to be even greater as tax revenue would also decline. The European Union is pushing austerity on its most indebted members: Greece, Portugal, Italy, and Spain. The problem is:  It doesn't work; Shrinking tax revenues outpace savings. Deficits expand rather than shrink.

So what happens next? Governments will probably respond as they always have to fund excess spending - they will use that printing press. The newly minted money will be used to pay bloated budgets and, bailing out "too big to fail" institutions. Bailouts are not always obvious. For example: Most Americans don't have a clue as to what a currency swap is, much less recognize it as the bailout of Europe which it really is.

"Extend and Pretend"- How Long Can it Go On? 

Since one bank's assets are another's liabilities any write down of non-performing assets (as large, highly leveraged European banks need to do) may precipitate counter-party bankruptcies. Bankruptcy is anathema. Everyone is terrified of  another Lehman-style global collapse. During the real estate boom a few years ago the same parties kept buying and selling houses from each other at  escalating prices. You knew it had to end eventually and it did. Now, some houses sell for 40% for what they did 4 years ago. At the time, no one forsaw this.

Warning Signs to Watch For

Markets want to delever and deflate while Central Banks fight the trend with asset purchases (printing). Who will win? I think ultimately the Central Banks will, though it will undoubtedly be a rocky road to a pyrrhic victory.

Watch inflation (or deflation) by monitoring the more non-speculative commodities such as agricultural goods. Precious metals and natural resources - having a more speculative component - are less precise in tracking inflationary trends.

Savings and Investment Implications For 2012

Central Bank policies are now the major driver of market volatility. When the banks purchase assets stocks rise, when they don't, markets stagnate or fall.

Cash is the original "safe haven" but with currency debasement it is a loser in the long run. Hold only enough to maintain liquidity. ETFs like Vanguard's Short Term Corporate Bond Fund (VCSH) can substitute for cash while providing safety and income. 

Own real things. This could be real estate (preferably free and clear or with a long term, low rate, fixed mortgage). Consider investments in natural resource or growth companies such as Devon Energy (DVN), Google (GOOG), or Johnson & Johnson (JNJ). Not good at picking stocks? Ride the coattails of master stock pickers such as Warren Buffett with Berkshire Hathaway (BRK.B). 

I would also hold some physical precious metals. MF Global has shown that assets held in commodity brokerage accounts may only as good as the company itself -  regardless what the law says. 

Resist the urge to time the market. Sure, those leveraged ETFs will give stellar returns if (and it's a big if) your timing is right. Current high volatility and daily rebalancing can degrade your investment rapidly. I have lost more than won with these - even low tracking error inverse ETFs such as ProShares Ultra Short SP500 (SDS) or Proshares Ultrashort Financials (SKF).

Good luck investing in 2012. We  may need it. 

Disclaimer: This article is informative only - not personalized advice. Do your own research and due diligence before investing.