Larry Bellehumeur

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.

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....

Enbridge, TransCanada: Pipeline Companies Offering Safety and Growth

Al -- Interesting points.....here's my take:

You've listed three very different Canadian Energy Companies. EnCana (ECA) is a great place for long-term growth, as they have a strong position in Nat Gas, and a growing Oil Sands/refinery play. I expect them to one day split off into two companies, as was planned a while back. Talisman (TLM) is also a balanced play with good assets in many parts of the world, including an interesting play in Shales in NY State. I also like their SE Asia Assets (Vietnam, as I recall), and they have always traded at a lower Price to Cash flow (must be still because of the hangover of their Sudan experience, maybe because of Jim Buckee leaving, who knows). Finally, Husky is more of an integrated, yielding play (although EnCana does pay a nice yield too), with their strong Retail and CardLock plays. I like all three and have owned them at different times (disclosure -- Long only on EnCana, no current position in the other two).

If you are looking for Canadian Energy Infrastructure plays, you may also want to look at Keyera Facilities (KEY.UN on Toronto). It does a lot of work in the Mid Stream Nat Gas processing. It is a Canadian Income trust, so be sure to find out how that affects your tax situation (generally, their distributions are taxed more like Interest income, rather than dividends). Disclosure -- No position, but looking at it closer.

Being that I am a Sales Director for a Wireless Solutions company (and have been in the Wireless space for over a decade), I can speak somewhat intelligently on the industry. However, I haven't done a lot of research on any of those (but will now....thanks for pointing them out). I currently own Telefonica (more for the yield, and for their Latin America growth exposure). I have also owned America Movil, France Telecom and Verizon in the past year.

Finally, as for the Petroleum consumption, it's hard to say. An important part to remember is that there is an overall decline in much of the US Domestic Oil production (except for the Shales), so I suspect that even if there is a dwindling demand, the production may fall off faster, leading to a sustained growth in pipeline rates/volumes. I think that the reduction in Oil usage in the US will be more gradual (people still have the same commutes, and Obama's increased Mileage standards don't even kick in for at least 5 years, as I recall).

Great questions...
Larry

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

Enbridge, TransCanada: Pipeline Companies Offering Safety and Growth

Thanks for reading, Everyone.

In terms of its overall Balance sheet, I can see what you are referring to, and I probably should have clarified that statement. What I was referring more to was their ability to fund current projects without having to go to the market for more capital, at least for the foreseeable futre. I do admit, their debt load is higher than I would like, but with their steady cash flow and good visibility, it isn't a concern for me.

In terms of other ones, I try to avoid thinks that may affect my personal tax situation (meaning that as a Canadian, I don't want to get involved in situations such as US Limited Partnerships, as they add to an already complex return.....doesn't mean that they are bad companies by any stretch). This would rule out TCLP / TLP from my list.

As for Kinder Morgan, there is nothing wrong with them, especially if you are looking for more a pure play in Mid-Stream, as they focus more on Pipelines and NG storage.

Personally, I like the added diversity that Enbridge (Retail Distribution of Nat Gas) and TransCanada (Power Generation) have.

As a disclosure, I have owned Kinder Morgan on at least 2 occasions in the past, but do not own it now. No position on the other two stocks.