Some may scoff at the question. "Of course they must decline," they say. After all, we know that it is "likely" that in 2011 Canadian energy royalty trusts will lose their special status as non-taxpaying entities which flow income directly to unit holders (with no revenue flowing to the provinces or nation in which they are located except that paid by the very few employees of the trust who reside in that province or nation.)

Whether you like the Canadian provinces’ and Canada’s national decision or not, you must admit the current structure does seem a bit unfair – the Canadian provinces and national government provide roads for these companies’ royalty-paying firms to drive on, schools for their kids, etc., but the only income the provinces or federals receive in return is the scant amount they receive from the personal income taxes of the few employees that work to flow the royalty income to the unit holders.

I am a long term fan of Natural Gas (nat gas) and have posted pro-nat gas articles on this website in the past. The price of nat gas is weak now due to its "junk energy" status during an economic downturn. It is highly leveraged to the economy and does very well in a strong economy and very poorly in a weak economy. This is due to its current primary use as an industrial energy source, its seasonal use for building heating in North America and its status as an "off-peak" electricity source.

If (when) nat gas becomes a primary transportation fuel source alongside gasoline and diesel, its utility and value will soar. I think that time is coming soon. The easiest way to achieve a significant global reduction in green-house gas is by a conversion of transportation systems from gasoline to nat gas and electric power from coal and oil to nat gas. This hasn't happened in the past for two reasons: (1) lack of distribution infrastructure (i.e. nat gas fuel stations on every corner); and (2) perception of uneven nat gas distribution across the geography (nat gas is expensive to transport other than through a pipeline due to its low density as a gas). A third issue is the conversion of vehicles from gasoline to nat gas powered, but this is a manageable economic issue that can be addressed with tax policy, and is not a technology issue.

Does gold’s move this past week suggest that the rest of the world has lost faith?

With the recent market rally, 2009 Q2 13F filings hold the allure of possibly yielding some indication as to what these respected managers may think of the rally.

You can view Seth Klarman and Baupost's hedge fund portfolio changes in spreadsheet form. As always, the caveat with Klarman's 13F filings is that Baupost plays in many different sandboxes (for instance, their recent participation in bailing out CIT Group). Thus, a lack of activity may not necessarily indicate a bearish slant -- the fund could just be pursuing better opportunities in other arenas than equities.

Why is Natural Gas so cheap (3.87 per mmBTU as of Friday) while Oil is moving ever higher? This is a significant disconnect that does not make long term sense. Historically, the average ratio between West Texas crude and Henry Hub natural gas has been 8.5 to 1. Currently, it is at a historic ratio of 19:1.

With oil at $72 per barrel, natural gas should be around $8.47. That represents a 125% potential pop in the price of natural gas if the price of oil stays constant. Many experts believe that oil is fairly priced right now, given the costs of exploration and extraction.

Given the multi-month recovery in energy prices (aided by the ongoing long term weakness in the US dollar in which energy is priced), one sees a lot written on how to play energy’s recovery.

A couple of months ago, I made a comment on an article about the price of oil. This was about the time it was coming off of its low, and there was a fair bit of controversy as to whether the move was sustainable, based on fundamentals, or whether it was another case of "speculators" moving the market.

At the time, I suggested that part of the answer might lay in the market "looking forward" to some improvement in the global economy, and another part of the answer was because of the decline in production, via the shutting in of wells, as well as an almost unprecedented adherence to production quotas by OPEC.

What does the past week’s market activity tell the high dividend income investor who is considering taking new long positions to get some return on cash that’s lying fallow? What follows is nothing fancy, people. Just a simple follow up and update to last week’s post Notes on a Scandal: High Dividend Investor's Survival Guide to This Unsustainable Rally, and some practical tips on what to do now.

Caveat: I’m not a prophet. The following conclusions are just based on the evidence I present below that this is not the time for new long positions. I’m still innocently (naively?) assuming we have a free, open and transparent market operating. However, given the degree of market manipulation we’ve seen (see Notes on a Scandal: High Dividend Investor's Survival Guide to This Unsustainable Rally) and mentioned in recent posts, one could argue otherwise and try to bet on a continuing rally aided and abetted, legally or not, by team Washington & Wall Street.

For those of us who've been waiting for oil and natural gas to move higher, this week has rewarded our almost-exhausted patience. It is Friday, 1pm EST as I write this Brent Crude is up $1.23 today at $57.70 per barrel. Natural Gas has again moved higher today, up 4% in one day at $4.25.

This has been a rally I anticipated and it wouldn't surprise me to see oil test the $60 level and Natural Gas try to break through the $4.50 level. These are the higher ends of the trading range I spoke of in my last article about the energy sector.

Here I'll briefly review the stocks that help you avoid the Seven Deadly Sins of Income Investors.

It isn’t easy operating in Canada’s oil patch these days, and while number-crunchers are starting to warm to the idea of a rebound in crude prices, gas producers are not so lucky, analysts say. Well, except for the ones who can take advantage of others’ misfortune.

There’s no need to read between the lines in George Toriola’s research note:

Yes, inflation is on the way. Perhaps, as Nouriel Roubini argues, it will take some time as the deflationary pressures of a still worsening economy and failing banking system work themselves out, so we may even see some deflation first. However, the Fed can't print the equivalent of the U.S. GDP's worth of new dollar bills (about $13 trillion) and not have serious inflation (unless we get government imposed price and wage controls?) at some point. I won’t even begin to discuss what happens if the demand for U.S. Treasuries dries up.

• Steady high yields, most of the recommendations’ dividends are very safe, some less so (but with more upside potential). Thus you are well paid while you wait for the market to recover (versus negative real returns in cash).
• Earnings and yields can keep pace with USD inflation, thus providing at least some protection for your principal and income.
• Currency diversification and thus reduction of risk from declines in the USD relative to other currencies.

• Strong businesses that continue to maintain or grow their revenues, incomes and cash flows even in this environment.
• Owning or controlling vital hard assets or commodities that hold or increase value in times of inflation AND/OR dominant position in a market niche with steady and growing demand that allows these firms to raise prices when needed to keep pace with inflation.
• Earnings and distributions in a non-USD currency, ideally one that is tied to hard assets and commodities.
• High dividend yields about 7% or higher: Regardless of price movements, you continue to get steady junk bond like yields with far greater safety and better price appreciation potential (as long as they meet the above criteria).

1. MARKET STATUS

Before ever considering investing in stocks, we must always first look at the overall market, since almost all stocks follow the major indices.

1. MARKET STATUS

See Part 7A.

1. MARKET STATUS

Before ever considering investing in stocks, we must always first look at the overall market, since almost all stocks follow the major indices. See Part 6A, Market Update: Warning: Do Not Feed (Yourself to) the Bears for full details. In short, we remain in a confirmed downtrend.

Treasury Secretary Geithner’s plan has revived the rally, but we’ve seen lots of short lived news driven rallies recently. Still, the idea of incentives to private investors to takeover questionable debts is a step in the right direction, since the government should not be in the financial services business any more than absolutely needed.

<<< Read part 1

<<< Read part 2

MARKET STATUS

Before continuing to examine the case for the U.S. Dollar and how high yield stock investors can hedge it while getting high yields, we first must look at the overall market, since almost all stocks follow the major indices.

High-yield stocks are a form of cash. Thus inflation eats away at both yield and principle. As governments inflate their money supply to ease credit, most oberservers believe inflation is inevitable.

If you think the price of oil is heading back up, but you want high income for protection, you should consider Canadian Oil Royalty Trusts. These Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts pay a very high income. The trusts pass through all their earnings and deductions from oil and gas wells to the trust holders, similar to real estate investment trusts. There is no taxation at the corporate level since they are structured as trusts. Also, a portion of the dividends may be non-taxable due to depletion and depreciation deductions.

You should be aware that the Canadian government came out with a plan to tax all Canadian trusts at the corporate level beginning in the year 2011. However, the average yield from Canadian trusts is still higher than the U.S. royalty trusts. WallStreetNewsNetwork.com recently came out with an updated database list of Canadian Oil Royalty Trusts. Below is a list of some of the Canadian Royalty Trusts that are traded on United States stock exchanges.

With the price of oil dropping below $40 a barrel for several days, the prices of the Canadian oil royalty trusts have dropped substantially. These Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts pay a very high income.

These trusts pass through all their earnings from oil and gas wells to the trust holders, similar to real estate investment trusts. There is no taxation at the corporate level since they are structured as trusts. Also, a portion of the dividends may be non-taxable due to depletion and depreciation deductions.