Think back to July of 2008, oil was over $140/barrel and a lot of talk on “Peak Oil” (the point in time when the maximum rate of global petroleum extraction is reached) was floating around. By late December a hard hitting recession (depression?) and a strengthening dollar drove prices under $35/barrel. Suddenly there was very little peak oil talk. Today oil is around $60/barrel - and dropping. It is time to again visit peak oil thinking.

Several factors influence oil’s price. The fundamentals, of course, are supply and demand. Wars and rumors of wars, especially in the oil rich Middle East, can drive prices sharply higher in just minutes. Quantitative easing (printing of money), technological advances, Middle East stability, market manipulation, “herd mentality”, all influence oil prices. So, any discussion on peak oil must also consider non-fundamentals.

As promised in Alternate Short Strategy: Purchasing Put Protection for Less, I will be continuing my list of alternate ways to hedge your portfolio without shorting the stock. In this post (part 2) I will be covering the stocks from 21 to 35 on the list of 50 (ranked by market cap). To reiterate my previous post: I believe the market is due for a pull back, so it may be a good time to purchase protection on some of your long positions. I decided to write about the 50 largest stocks (by market cap) in the S&P 500 and give a put protection strategy for each of them. To get a detailed spreadsheet of all 500 stocks, which will allow you to rank them based on their market cap minute by minute with the click of a mouse check out my blog post here.

If you're coming across this post you most likely hold or at least have interest in a stock I'll be talking about shortly. In this article I will lay out 15 option ideas, which will help hedge your portfolio against the downside. These ideas all require using the Bear Put Option Spread Strategy.

There's a lot of hubbub surrounding H.R. 2454, otherwise known as the "cap and trade" program. Personally, I think most of the criticism against cap and trade misses the mark. Few people have talked about the fact that cap and trade programs require inter-country cooperation to be effective, but enforcement mechanisms have not been clearly defined or tested. What will the U.S. do, for example, if China "cheats" on carbon emissions? China, after all, uses mostly coal for its energy needs. Perhaps we'll have some version of the International Atomic Energy Agency (IAEA), but for carbon checks. I suspect any heavy-handed enforcement will strain relations between countries, but a heavy hand is exactly what is necessary to convince everyone to play by the rules.

In any case, I jumped into commodities earlier this week (a few days too early), and am happy to hold UNG, FCG, WMB, WPZ, GSG, COP, and DBC. If approved, President Obama's cap and trade program will reduce coal and require more natural gas and solar power. Thanks to environmentalists, America may finally be able to reduce its dependence on foreign oil.

Bullish Calls:

Nordic American Tanker (NAT): "I have been in constant contact with the Nordic American Tanker people (who have by the way have helped me to understand the manipulation of the oil market) that yield is safe… NAT is better… I want you to make that swap."

Commodity markets signal a brighter future for buy recommendations Encana (ECA), ConocoPhillips (COP) and Devon Energy (DVN), the first, second and third largest North American natural gas producers by volume. The latest weekly price in our tally of the average monthly futures price for natural gas for the next six years at $7.18 has edged above the latest 40-week average, thereby reversing a ten-month downtrend by that measure.

Ironically, the symbolic indicator of bullish future conditions arises as Encana told investors at the Canadian Association of Petroleum Producers conference in Calgary on June 15 that it may reduce natural gas production as a result of low price.

3:51 PM, Jul 6, 2009 --

• NYSE down 5.2 (0.09%) to 5,770.
• DJIA up 44.1 (0.5%) to 8,325.
• S&P 500 up 2.3 (0.3%) to 898.71.
• Nasdaq down 9.2 (0.5%) to 1,787.

GLOBAL SENTIMENT

The Canadian economy is the eighth largest in the world according to the IMF. As of 2008, its nominal GDP was $1.274 trillion, with growth of 2.7%. It is part of the G8 and other 'rich clubs' such as the OECD. Although 2008 showed a contraction, Canada appears set for growth momentum in 2009 -2011.

Unlike most developed economies, Canada has moved from agriculture straight to services, which now account for nearly 67.9% of GDP. This industry is very diverse and includes the retail sector, financial services, real estate, education, health, high-tech, entertainment and tourism. All these sectors are developing at a rapid rate with retail and health leading growth. The service industry employs 75% of the 17.9 million working Canadians.

Stock prices above the 200-day averages for our buy-recommendations among Canadian, Chinese, Russian, Brazilian and European stocks, including Canadian Oil Sands Trust (COSWF.PK), PetroChina (PTR), Lukoil (LUKOY.PK), Petrobras (PBR) and StatoilHydro (STO), may be reflecting investor misgivings about developing U.S. energy policy. The trend for non-U.S. producers contrasts with stock prices hanging below the 200-day averages for the largest U.S. oil companies, including buy recommendations ExxonMobil (XOM) and ConocoPhillips (COP). Though the debate continues, our political leaders appear to be gutless on coal, silent on natural gas, prejudiced against oil, and falsely promoting clean energy. The tendency for such attitudes may also contribute to weak expectations for U.S. economic activity and the dollar. Ironically, U.S. political bias against oil has probably helped drive up the long-term oil price in our weekly tabulation to more than $80 a barrel for the first time in the new cycle.

Gutless on Coal
Representatives Waxman and Markey have released a draft bill to reduce carbon dioxide, a perceived pollutant created in large quantities from coal burned by electric utilities. The bill would require permits to emit the colorless, odorless, tasteless and mostly benign gas blamed for contributing to a global warming trend. Yet, the bill proposes to give away free permits to coal burners thereby undoing almost all but the symbolic impact of the action.

The Federal Reserve on Wednesday held monetary policy steady and said the U.S. economic recession was easing, as it signaled its worries over a possible troubling downward spiral in prices were fading. After Wall Street and Main Street digested what the Fed said, they turned bullish today.

Investors rushed back into stocks as profits at a handful of companies indicated the economy might be gaining strength. Gains in homebuilders, retailers and other consumer discretionary stocks pushed the market sharply higher Thursday. The Dow Jones industrial average rose 175 points.

Co-written by Oleg I. Kitov

Today is June 23, 2009 and I have read 5 text message alerts, 11 Facebook messages, 14 emails, several "tweets" on twitter, not to mention listened/watched several hours of doom and gloom in the past 12 hours.

So is this doom and gloom real? Is the market due for a correction? I cannot answer these questions, but I do believe we'll have some sort of pull-back in the month or so to come, especially now with all the doom and gloom talk creeping back up everywhere.

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Soros Fund Management ran by George Soros. Soros (who photographs extremely well by the way) is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. (We just covered Jim Rogers' portfolio today too). Now, he has carried his investment style over to his own firm. Whether it be equities, bonds, currencies, debt, or commodities, Soros is more of a global macro player, seeking investments in whatever market he can gain an edge. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. Soros is not required to disclose holdings outside of equities, notes, and stock options. 2008 was an interesting time to be investing, to say the least. Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished 2008 up 8% as noted in our hedge fund year end performances post. His success in 2008 came from making correct bets on the U.S. dollar and betting that short term interest rates in the U.K. would decline. Interestingly enough, Soros was down for much of the year, until he fought his way back with overtrading.

Soros is good to track because of his excellent macro sense and formidable track record as an investor. His thoughts on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros sees a vast consolidation in the hedge fund space in the near future, as we noted when we recently checked in on Quantum Fund ex-partners Jim Rogers & George Soros. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why.

We “sold too early” at the end of April, between 8,200 and 8,500 on the Dow. We expected considerable churning but little upside. We found plenty of fine short-sell candidates during the time since, but few stocks we were willing to buy. Well, here we are, at the high end of our exit range with our short positions laid on, and finally – a worthwhile long position for the troubled times we see for the Dog Days of Summer.

That position is the closed-end Gabelli Global Gold, Natural Resources & Income Trust (GGN).

The GCFR Overall Gauge of ConocoPhillips (NYSE: COP) slipped from 46 to 44 of the 100 possible points in the first quarter of 2009. Our initial and updated analysis reports explained in some detail how this score was attained.

Lower energy prices have had a crippling effect on Conoco's results. Earnings per share fell from $2.62 in March 2008 to $0.56 in this year's first quarter. Revenue dropped 44 percent.

Yet to sustain stock price above the 200-day average, buy recommendations ConocoPhillips (COP) and ExxonMobil (XOM) along with two peer stocks that make up our U.S. Integrated group, have the potential to confirm a new stock price uptrend. In contrast, non-U.S. large cap oil and gas stock groups are in a stock price uptrend already for the most part. Largely because of stock price action, the median McDep Ratio for the U.S. Integrated Group is now the lowest of five large cap groups compared to three months ago when it was the highest.

One could be pessimistic and reckon that the threat of higher taxes is overhanging the U.S. stock market and U.S. oil and gas stocks. Yet, because oil tax increases contribute to oil price increases, our political leaders are likely to moderate anti-oil industry action. Meanwhile, crude oil price also appears to be near keeping a level above its 200-day average. Late last week, both the near-month and twelve months crude oil futures prices crossed the 200-day and 40-week average, respectively, perhaps ending the downtrend since September 2008 and possibly indicating a new uptrend.

While many investors are unsure of where the market is going from here, many of them agree wholeheartedly on one thing: inflation. With record-setting government debt and spending, combined with a possible resurgence of commodity prices, both consumers and investors face an inflationary dilemma.

Most investors, smelling high future inflation rates, have fled to the traditional assets that battle such an event. These include TIPS, Gold, and commodities in general (commodity ETF's).

I just finished reading a book called "Game Over" by Dr. Stephen Leeb, and I am not sure what to make of it. The basis of the book, at least how I have read it, is that there is going to be a pressing demand for resources (Oil, Natural Gas and all sorts of Mining products) that will push the price of these products to points that will force inflation-like conditions as there were in the 1970's (if not much worse).

His theory goes further on to say that unlike the 1970s (where most of the demand for oil was caused by Political conditions), this spike in prices is one that is more of a permanent nature, as the spike is more due to a lack of supply caused by a scarcity of the materials and/or the ability to extract the materials at a rate to meet the demand.

Bailout Nation mentality has hit critical mass. Just as we have walked away from homes with "no sweat", we are now at the point our debts on credit cards are no longer an issue either. Just start failing to make payments and wait eagerly for the credit card company to call you to strike a deal. How they can afford to do this? They are backstopped by your taxpayer money of course... no major financial institution is allowed to fail.

See how it's circular? You are financing the bad behavior and defaults, your taxpayer money is the backstop that allows the credit card companies to settle. Because they can always raise more money with the government's implicit backstop. (Think Fannie Mae and Freddie Mac, but now extended to all our "too big to fail" financial institutions.)

Many investors are somewhat dazed and befuddled as they watch what used to be called "The Natural Resources Sector" bounce up and down as the summer season commences.

With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit.

By Sheraz Mian

The House Energy and Commerce committee passed the American Clean Energy Security Act (H.R.2454), also known as the Waxman-Markey bill, on May 21. The bill is expected to be considered by other House committees in the coming days and is reportedly on a fast track for a vote in the full House before the July 4 recess.