Larry Bellehumeur

Natural Gas: Grim Outlook Through Late 2010

Wow, mn33....I'm glad you actually read my answer before making such a comment! =)

The reality is that it depends on what your timelines are. If you are a short term trader, it proved wise not to get involved in any NG-related activities. However, NG is the fuel of the next 10 years, and this would prove to be a good long-term entry point if you were patient.

But, I guess you didn't bother to read that far!

Is American Express Still Cheap?

AMEX is also very tied to the Business Travel / Corporate Market (both from their Travel Services sides, but more importantly, Business travelers tend to spend a lot and pay their bills). Until you start seeing a rebound in that space, it won't fully have wings.

As well, they are tied (as Einstein points out) more to the overall credit balance of consumers than a Visa or MC. Although this gives them great leverage when the consumers bounce back, it does make them more vulnerable. It would be the higher Beta way to play a Consumer recovery, that is for sure.

I do like AMEX long-term, as Consumers are loading up their savings, and once they see the job market going, it will be too hard for them to resist buying things again. I would think it may have spectacular earnings in 2011/2012, just no need to buy at this price. We could see a big pull-back on this (maybe 15-20%) in the fall, as I think we will fall into a "Mini Double-Dip". It would be a great entry point for a long-term hold at that point.

Disclosure - I do hold some AMEX, but a much lower position than I had before (I unloaded it in the low $30's).

Good article....

Multinationals: A Safe Way to Play the Coming Drop in the U.S. Dollar

Moon - I sure hope you are wrong, in term of Stimulus II, but you could be right. It would be a disaster, and make this article all the more relevant (something I wouldn't want). It would also mean that the upcoming Inflation issue would be a nightmare for a decade or more....

William -- It is a good point. The main reason that I was focusing on ADRs is the for the simple availability for everyone. As an example, being a Canadian, it isn't as easy for me to buy Foreign-listed stocks in London. Ultimately, the same effect would happen, just in a slightly different way (ADRs would appreciate because a depreciating dollar would boost the earnings per share, where as buying a Foreign listed equity in US dollars wouldn't help the earnings, but you would see the same benefit directly from the currency). Good point....

TheFounder - Also a valid point. My main goal for this article was more to bring up the likelihood of a US dollar drop (which is happening today, ironically), and to give some ideas on how to play it (aside from the usual Gold and other plays). There is no perfect balance, and I would recommend that investors of all ranks hold a large selection of them. Many of them, such as Gold and Oil Stocks, also offer an Inflation hedge, in case that happens too.

Thanks for reading!
Larry

Multinationals: A Safe Way to Play the Coming Drop in the U.S. Dollar

Hello Everyone,

Dave - The dollar has held up better than I would have ever expected in the past little while. All of the points in the article have been in place for at least months (if not, in the case of trade deficits/debt, years), but the market often flocks to what it knows in times of distress, I guess....

PVizzle -- I definitely wouldn't use these stocks as the ONLY way to play a falling US dollar. I wouldn't even use only stocks in general....gold, Energy Producers, Energy Services companies, REITs, TIPS and other instruments are all going to be necessary for every investors portfolio. I agree that Resource stocks can be a great hedge against a falling greenback. However, they do carry a fairly high level of volatility, and not all investors can stomach that. I wrote an article about Dr. Stephen Leeb a while back, and posted some recommended long-term resource plays in there, including Ag stocks.

To add to your other point, I hate to speculate too much in articles, although, one has to wonder just how long the rest of the world will continue to use the Greenback as both the Main world currency and as a way to price Global Commodities. If either one of those positions were to slip, look out below!

As for companies such as Monsanto, ADM, Syngenta, they do have a good future, and would be good choices to balance off US dollar exposure. You could arguably add in Mosaic, Potash and Agrium......only recently did they ever get down to an evaluation that even remotely made sense to me, however. I have owned Potash in the past, but flipped it out at close to $190 before (didn't reach the top, but didn't lose my shirt on the way down).

Disclosure - No position in any of the Ag stocks, long on a bunch of Energy producers/services, REITs, Gold and TIPS. So, you can see that I think inflation is going to kick in soon!

Cheers to all
Larry

Natural Gas: Grim Outlook Through Late 2010

Wiskey,

To add to my points above, I'm not saying that Natural Gas is dead forever. Everyone believes that prices will rebound. It is a matter of opinion when one thinks that they will, not a matter of fact. NOONE knows for sure. Not even Execs at EOG.

EOG may believe that Natural Gas is going to rebound like they do, that is their belief. Most analysts, as you know, since you follow it as close as you do, do not believe what EOG is saying. As well, since you also know the business as well as you do, you'll know that Service companies are not as booked up for the Winter drilling season as they would be, if the overall market was of the same belief as EOG. Many of my customers are Oil/Gas Services companies, and they have been told by the Producers to expect a lighter than normal drilling season, which for Canada, means a drop from over 25000 new wells that they saw in 2006/07, down to a lower 12-15K in the Winter 2009/10 drilling season. It is also light for Summer 2010 bookings.....Where is this bullishness?

I'm trying to see where you are coming from, but the market simply doesn't seem to think this is true. Natural Gas futures for February 2010 are only trading in the $5.50 range. If the belief was as obvious as you say, where are the hedge funds? They live for this stuff.....

The likelihood is that EOG didn't think that Natural Gas rates would be too low in the first half of 2010 when they put the hedges in place (a long time ago, I presume).....they are not alone, most companies didn't. When they bought the hedges, Natural Gas was on its way to $13 and beyond. EnCana, which is the example that I used, is probably the premier run Producer in North America, and even they didn't hedge to the extent that they needed...

Now, I'd love to be wrong, I'd love it if you were right. I make a lot of my living selling equipment to Natural Gas drillers. Unfortunately, it is that insight into the market that I get from talking to them daily that further exemplifies my belief that we will not see a big rebound as fast as you predict.

Just look at the EIA inventory. Based on the current pace, we may top out at close to 4 TCF by the time we start drawing from Inventory in November 2009. In order for inventory to hit its normal range by April 2010 (just normal, not low), we would have to draw about 2.6. Considering that the average draw in the past 5 years has been about 1.8 to 2, it would have be a pretty nasty cold winter, combined with a spike in demand / disruption in supply to have a chance. To see that happen by January 2010, we would have to be down to about 2.2 TCF, a draw of 1.8 TCF in two months! The average draw down from 04 to 08 is half of that....Impossible? No, but would you want to bank on that?

Again, I'd love to be wrong. I'd love to see us with $9 Nat Gas in December, at which time I'll gladly write a glowing retraction. It would just take an awful lot of things beyond the Industry's control for this to happen. Producers are doing what they can, as EnCana, CP Canada and Suncor/Petro-Canada, along with a few US ones have announced production cut backs.

I appreciate your attempt to educate me. Please do remember that I live in Calgary (where we live and breathe Nat Gas), and have a lot of access to key people in the Industry.....all of which who would love to see EOG's scenario develop. They just don't believe it (re: see production cuts above)

Cheers....keep up the comments, I love having debates, it is what makes this fun. I don't get any money for this, but rather, it is something I do in my spare time.

Natural Gas: Grim Outlook Through Late 2010

That should read "....would not just stop" on the third line

Natural Gas: Grim Outlook Through Late 2010

Wiskey -- thanks for your note. Your assumption is that production will stop completely, and everyone will just burn through all of the inventory. If that were the case, you have a point. Since production just not just stop, do you really think we will burn through our excess capacity in that little of time?

If I accurate knew the exact answer as to how long it will take to bring supply down to a more normalized levels, I'd be much richer than most people. The reality is that Natural Gas is very much linked to weather, and unless we have a very hot August/September, then a really cold start to fall and winter, this inventory is not going to be burned off anytime soon.

You're entitled to your opinion, but it should be noted that your comment on how fast we can burn through inventory isn't accurate. The world's energy producers aren't going to seize production, just not bring on new production....

Zorro -- the reality is that most producers that I follow would not have hedged more than 30-40% of their production that far out, when prices were good. My point was more a long the lines that most producers who have hedged are likely to see a significant drop in revenue as those hedges come off....your point is well taken, but I would expect that it is more the exception than the rule to see hedges of really high values (say north of $6) and high percentages (say north of 50% production) for too far into 2010

Natural Gas: Grim Outlook Through Late 2010

Ok, a lot to digest here....here goes some comments:

Naturallight - That is scary. My point was more that Shale Gas (which is deemed the saviour to the US Foreign energy crisis) declines fast. I don't have as much knowledge of Off-shore, but if you are right, that is crazy.

Mmark - In the article, I talk about someone at a drilling company. He did mention that he had seen them that high, but 50% was more the norm. Either number is scary, considering the lack of production.

Barbarous - My source was the US Natural Gas Inventories report for August 13th (by EIS). It shows that storage from Producing wells climbed up to 1073 Bcf, which compares to the 5 year historical comparison (2004-2008) of 794 Bcf. Maybe the actual production isn't up, but the storage produced from producing wells is up. I probably should have worded it different.

Buck East - depends on what your cost per well is. Some of the deep wells aren't economical as less than $6. Other formations are much less complex to drill. Baker's rig count may be up compared to other months, but the more accurate comparison is to compare it YoY..

Natural Gas: Grim Outlook Through Late 2010

Tipalia - Thanks as always for your kind words. I've written before on Natural Gas, but never really focusing heavily on the Income Trust side. I'm also a Canadian, but never really cared too much about the US dollar exposure (as you're getting that exposure anyways with the NG price being in US dollars, and many Canadian Producers looking at declaring their earnings in US dollars (like EnCana).

In terms of the Trusts in particular, I like ones that are relatively well split between Oil/Gas, or ones that are more focused on Oil at this stage. Ones like Crescent Point (no position) and Bonavista (no position) are two of my favourite, as they give both nice exposure to the Bakken Oil Play, as well in the case of Bonavista, some nice exposure to the Montney play in NE BC / NW Alberta, for when the Gas price does rebound.

Specifically for Canada, I would look at some of the drillers, but only when you believe that Nat Gas has really turned for the upside. Look at ones such as Trican, Ensign and CalFrac (no position in any).

Ferdinand -- It does sound really high. This is the approximate number that I was given by a Supervisor of Drilling at one of the major drilling companies. I have read higher....

Here is a clip from an article from Ross Smith Energy:

Total U.S. production had remained relatively flat year-over-year prior to a recent increase in gas drilling activity in 2007 that
continued through most of 2008. According to the analysis, the average annual first-year decline rate for new shale gas wells was
relatively unchanged, between 40% and 50%
.
The base decline rate of U.S. production had remained fairly steady at 26% to 28% since 2003. “The decline, which needed to
be fought, during 2007 (declines from 2006 and prior drilling) was around 27%.”

Google Chrome: Redefining the Operating System

The stock went up 25% from July 8th, the day of this article, in less than 2 weeks. It is still up 15% from then....

Kind of proves my point....the market doesn't care about Google in this area, until they break the Corporate Monopoly. Not saying that they can't do it, just that it won't matter until they do.

Larry


On Jul 08 10:58 AM CloroxCowboy wrote:

> Gotta disagree. Mac and Linux are completely different than what
> Google's proposing with Chrome. Apples are too expensive for marginal,
> if any, computing advantage...it's all about buying an image. Linux
> is not necessarily hard to configure, but it's not the push-button
> solution that Goodle is describing either. And neither is really
> a web-based OS like Chrome would be.
>
> A fast, streamlined, FREE os that gets users on the web quickly...I
> think MSFT is in serious trouble.
>
> On Jul 08 10:01 AM Larry Bellehumeur wrote:

Google Chrome: Redefining the Operating System

The Market won't care.....there has been a viable option in MAC and Linux for years, and MSFT is still king. Do you imagine a Fortune 500 company, which is where much of their money comes from, switching over? The average Home user might put $100 in MSFT's pocket, where as GE might put hundreds of millions per year....

When Google cracks the Corporate market, then people will notice.

Dr. Stephen Leeb on Commodities and Inflation - Is He a Genius or Alarmist?

thanks for everyone, who took the time to read and comment.

KSA -- I would personally rather look at Viterra than ADM, as it is more of a pure play on Grain prices. If you prefer ADM, you would also have to likely think that there is some validity to the expansion of Ethanol. As for MOO, I just took a look at their holdings. I rather like the broad exposure (Equipment, Fertilizer, Seeds and more). Might not be a bad play.

ChefDavid -- I have heard that argument before. Since there is so much scrutiny on these large companies now, I would have to believe that they are following what is in their mandates. You never know, though, I guess...

DirtyOil -- One does have to admit (even someone who benefits from the Oil Sands, like me, as I like in Alberta), that the Oil Sands do burn off a lot of other resources, including Water and Nat Gas. However, the world simply needs to produce more oil, or risk the price skyrocketing over the next few years. The Oil Sands producers are under extreme pressure to clean up their acts, and with the Billions being thrown at them, one has to hope that they can.

Dr. Stephen Leeb on Commodities and Inflation - Is He a Genius or Alarmist?

ok, having troubles keeping up with all the comments!

George09 -- Can't say that I totally agree. Oil's rise affects all things in the economy, from manufacturing to Ag to Transportation to heating your home. This spike in prices is not caused by inflation, but rather by a supply/demand inbalance. Look at the past few inflationary times (such as the 70s/80s) and it was caused by the sudden spike in Oil. Leeb's theory in the Oil Factor is that whenever Oil rises 80% over the previous year, inflation is bound to build up in the system to cause a recession within 18 months.

Dallas -- to be clear, Leeb coined the term "BRAC". I also agree with the previous comment that many of the Middle East Producing countries could also be mentioned. I wasn't aware of NZ's Commodity promises.....I am curious now.

433429 -- I think that Grain prices may also be an interesting thing to watch. I think that Leeb did mention is, but the major point was that Oil tends to be the commodity that is most noticed in Inflationary results. However, since Food is also left out of the CPI, Ag's true impact may not be fully known. Your point is well taken.

GeoJoe -- To quote the CEO of Suncor, when asked if we are in Peak Oil, "We wouldn't be, if the Oil Companies were allowed full access to all of the Oil that is held by the Nationalized Programs". Peak Commodities is as much Political as it is Geological.

Cheers
Larry

Dr. Stephen Leeb on Commodities and Inflation - Is He a Genius or Alarmist?

This must be my most "Commented-on" article....thanks for all the great comments..

Emerald -- Can't agree with you more. I also like CNQ (which I am long on), due to the fact that I don't believe that their Horizon Oil Sands project has been fully priced into the stock.

Tipalia -- I have to believe that KMP's dividend is sustainable for now. I haven't seen their payout ratio, but Pipelines as a rule generally have one of the best cash flow reliability in all of the stock world. What I would be worried about with any of the pipelines is if they over-extend themselves (build too fast), or if there truly is going to be a lack of product (i.e. conservation) flowing through their product. Not likely scenarios.....Disclosure, no position in KMP

Ozzy -- I think that people, in times of distress, often turn to what they know, which is often the reason that History repeats itself. I think much of what worked in the 70's will indeed work....the only class that I can see not working as well is REITs, but it still will be a better investment than most.

Michael Young -- It should be interesting to see what happens to the Non-Commodity sectors of the BRAC countries. As a resident of "Commodity Rich" Alberta, I can tell you that it became virtually impossible for a Non-Oil/Gas business to afford to remain competitive in Alberta, as the costs of labour just got out of control. As well, the CDN dollar began to trade with the rise in commodities, gaining it the nickname of the "Petro-Buck" locally. This virtually killed much of the manufacturing in the rest of the country, as the price of their shipments globally rose by close to 60% in 5 years. I think that it will be a lot of division in the BRAC countries, which is why I recommend to no use a General ETF to cover each country. It will also be fun to see how they keep inflation cool in the BRAC countries....

Cheers everyone,
Larry

Dr. Stephen Leeb on Commodities and Inflation - Is He a Genius or Alarmist?

Thanks for everyone's comments.

MCI -- As mentioned in the article, Gold (in addition to its inherent protection against inflation) is often seen to as a Safe Haven. My point was more that people did not seem to view it in this way to the extent that one would expect (as seen by many of the investors/analysts). I still personally think that it is a great place to run and hide during bad times, but unless the masses think the same thing, we may not see the rise be as dramatic as it should. The other problem is the nasty decline that Gold took in the early part of this crisis when it should have exploded upwards, but I chalk that up to more of people unwinding positions that they could....

Guapo - Your points are well taken. I personally think that the US dollar may get to the point that even the main commodities themselves won't be priced in them by 2011. Then, it will be a freefall...

If nothing else, Leeb's views make one look at alternative ways to invest, ones that steer greatly away from the usual Wall Street mentality.