Trading The Next Decade

Includes: CLMT, UUP, X
by: Michael Shulman

The most important headline of the past ten years concerning the long term future of the country was on the front page of the Wall Street Journal this morning, "US Redraws World Oil Map." The substance of the article was news that broke a few days ago - the International Energy Agency is now forecasting the US will pass Saudi Arabia as the world's leading oil producer within a decade.

Surprised? Too many people are.

This gush of oil - and perhaps more importantly, natural gas - is the result of a fracking here, there and everywhere. Obama did not win Pennsylvania due to this and that and the other thing; it is estimated by Alliance Bernstein that fracking will put 420 billion into the state in 2012 compared to $7 billion from the coal industry. Ditto - politically - the impact of fracking in Ohio. I have been to auto plants - yes, the bailout helped Obama, fracking helped a lot more.

The macro level consequences, besides having to listen to the primal screams of right wing radio shock jerks, excuse me, shock jocks, are incalculable. These impacts range from a rapid build out of core industrial facilities in the heartland - at least 15 are now in the permitting process, refineries and chemical plants and such - to the president of the US, ten years from now, telling European nations who bullet every two or three years, for their armed forces to protect their own oil supplies with your own men and women and euros, we don't need to any more.

Where should an investor start? Please remember I said investor, not trader.

I like US Steel (NYSE:X) - I think the US will have a mild recession next year but their shipments of steel for pipelines and fracking is exploding. Capital spending on pipeline construction is up 82% this year - no kidding - and will grow in serious double digits for several years, not to mention the steel that is consumed during fracking. Yes, consumed. Wall Street has yet to completely understand this opportunity.

I like some second tier refiners, notably Calumet Specialty Products (NASDAQ:CLMT) - they own the world market for aviation lubricants, a double digit grower, have a great yield mix of diesel to gasoline, are buying little refineries no one else wants in the Midwest and most important, their refining capacity can handle the truly dirty, lousy oil that comes out of shale formations, something most refiners cannot do. The stock yields almost 8%.

And I like the dollar. The US balance of trade is going to improve every quarter for as far as the eye can see -OK, there may be a quarter here and there I am a bit off but the flow of dollars to pay for foreign oil is shrinking fast with imports down 11% in the past year.