Larry Bellehumeur

Oil Above $50 and Still Has Legs - Cramer

Scares me a bit that people are starting to pump up oil too much, too soon. As much as I am a believer in the long-term bull case for Crude, you have to look at the large stockpiles that have to be widdled through. I do believe that Oil should rebound more in the 2nd half of 2009, as Stimulus project use a lot of Diesel (Generators, Machinery and Worker Trucks). As well, many that might have flown to a more expensive vacation will chose to drive in the US Summer Driving season.

Watch for Oil to fully recover (north of $100) sometime in 2010, when the BRIC countries resume their long-term middle class growth plan.

Larry

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

Update -- I actually did take a small opening long position in BHP Billiton yesterday, with the anticipation of making the position larger if there is any further weakness in the stock.

Thanks for reading, Buy it Cheap! Those who can sell things into any of the Emerging Markets are also likely to do well in the upcoming years....

A Lesson from TIPS

TIPS are best owned in a Tax-exempt Retirement account, from what I have found......I have owned TIP for about a year. Factoring in its payments, I am up about 8-10%, which is not bad considering the total market is down 30% or more....

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.

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'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.

Natural Gas: Short Term Bear, Long Term Bull

Think I need more coffee....my comment to Mad Hedge should read "I doubt that it IS sustainable for too long"

13 Safe Stocks in a Return to the 1970s

I like the article for the most part...Couple of points:

1) You could likely substitute Microsoft for Cisco in your Consumer play, as MSFT has much more of its overall revenue exposed to the Consumer than CSCO, who only has some through its Linksys brand. Much more of their revenue is through SMB, Corporate and Government.

2) Don't know if I would include PetroBras in the category of a Low Cost producer. I like the company, but most of its production needs $60 to $80 a barrel to be productive, as the cost of Off-shore rigs is still high. They also still have a lot of exploration costs....

3) Apple, Disney and Nike are all solid brands, and will bounce back violently to the upside when the consumer starts spending.

Larry

Water: The New Oil

PHO looks interesting, as it seems to cover many areas of the Water spectrum (iTron, its biggest holding, is a Water Metering company, while it has positions in Danaher for the Technology side, and Veolia for the Infrastructure side). Thanks for pointing it out....

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%.”

Enbridge, TransCanada: Pipeline Companies Offering Safety and Growth

Naidle -- Excellent point. However, there are two ways that you can look at that argument....On the negative side, High inflationary times tend to boost up Interest rates, and since these companies (along with most Utilities) have to borrow significant amounts of money, their interest costs can hurt earnings. As well, their Dividends can look a bit less attractive when you can earn a high yield in your Savings account.

However, there is also a positive side to these companies in High Inflationary times. Their previous debt does become less in "Real Terms" during inflationary times. As well, many economists feel that it makes sense to own Hard Assets (such as Real Estate, Gold and Pipelines) during inflationary times, as the value of these assets tends to keep up with Inflation. As well, because much of their income is regulated, they generally can increase rates to keep up with Inflation, as per their contracts.

It will be difficult to know which is the right way to go, if we do have the inflation that I suspect that we will get. These companies weren't the same entities during the last time that we had High Inflation (the early 80's), so there isn't a huge track record.

I personally have a portfolio that is geared for this (namely TIPS, Gold and Oil Companies, all of which should do well).

Great point! Thanks for reading
Larry

Saudi Khurais Field: Looks Like Easy Oil May Be Gone from Arabia, Too

The other problem that they are seeing (sorry if someone else brought it up) is that they are now seeing issues with Water cuts (don't know the technical term). Basically, the level of water being pumped out is increasing.

Check out Matt Simmons book, "Twilight in the Desert". It makes for scary bedtime reading.

Natural Gas: Short Term Bear, Long Term Bull

As always, thanks to everyone for taking the time to read my article.

Mad Hedge -- I suspect that it may bottom out closer to $3.00 before we are done. Some renewed Economic optimism may help to raise it temporarily, but doubt that it sustainable for too long. I do like Devon Energy as well, mainly because they seem to be a very well run company. Disclosure - No position in DVN

Fitz -- As I mentioned, I am not sure if we will ever see a boom in Nat Gas usage for vehicles. Proponents of it include Boone Pickens, who has done some advising for Obama, but it would be too much to create the necessary infrastructure to match the ease of using Oil. A possible spin-off for Nat Gas would be if the move was towards Plug-in Hybrids took hold, as they would create a greater need for Electricity production. This would have some indirect effect on increasing Nat Gas use.

LongOil -- There are many people who are much smarter than I when it comes to Chemistry, so I will take your word for it. The reality is that it will be at least 2018-2020 for any power to be generated by Nuclear in the Oil Sands (and this is assuming that all of the Government regulations can be done quickly....no sure thing).

Cheers
Larry

Thoughts on the Apple Tablet, iPhone Rumors

I wrote an article on how the Business market might accept the Tablet, which to summarize, is not good. Not sure if that will make a difference, as this product would rocket in sales out of the gate. What I wonder is what the long term sales will be like.

Many people buy anything with a logo on it (still waiting for the iToaster, iWashing machine, etc. to come out). However, what problem does this product solve for the non-Hardcore Apple users.

Perhaps it will help to spark the "iReader" or eReader market, but I just don't see this one being the home run that everyone is talking about.....

3 Reasons to Be Bullish on Natural Gas

How about the record storage and overproducing going on in the Shale plays?