No sex. No drugs. No wine. No women.

Or perhaps, more wine. Lots more wine.

Via the excellent housing blog, Calculated Risk:

Times: Top economist says America could plunge into recession.

Quotes:

Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”


P.S. The Vapors.

P.P.S. Love Heebner, but I'm worried like Schiller.

Heebner: I'm Cuckoo for Petrobras.

Kenneth Heebner of CGM Funds apparently really likes Brazilian oil producer Petrobras (PBR), and he's bullish on the economy of Brazil in general. The Fortune article I highlighted earlier mentioned Heebner is a fanatical researcher, that's on display in these videos.

Note: I believe there is an error in the CNBC video. CNBC displays the chart of PZE, which subsequently rose 15% today. But PZE is a subsidiary of Petrobras, and I believe it is focused on Petrobras' Argentina properties. PBR is the right symbol for Petrobras, and it is the symbol that Bloomberg uses.

CNBC: Focusing on Return$.

Bloomberg: Kenneth Heebner.

P.S. As mentioned before, I own Petrobras.

Wolves in mutual fund manager's clothing.

Both Kenneth Heebner of CGM Funds and Robert Rodriguez of FPA Funds run mutual funds, but they are both by nature hedge fund managers; highly intelligent with strong opinions, they are not afraid of going against the grain (or tides) by concentrating their bets in certain areas or avoiding certain areas entirely, and neither one toes the 'I must remain diversified" line.

There are differences; Heebner is a growth oriented manager, with an 'anticipate and ride the momentum' style, while Rodriguez is value oriented and generally more conservative. Both have participated in the energy sector over the past few years, Heebner with a mix of production and service, Rodriguez a little more tilted to service. Both also managed to avoid the housing/financial debt crisis, Heebner by riding and then shorting the homebuilders, Rodriguez by dumping his mortgage bond related investments before the slaughter.

Of the two, Heebner has the super hot hand right now, up 60%+ this year, and up a Warren Buffet like 24% over the past 10 years. Rodriguez is having a bad year this year, but has a solid long term record.

It's interesting to note how different their calls on 2008 are. Heebner believes the economy will escape recession in 2008, and continues to be bullish on global growth and the energy sector in particular. His favorite energy stock right now is Petrobras, but note that Heebner can and does change his mind on a dime. Rodriguez, on the other hand, believes a recession in 2008 is likely a certainty.

Personally, I am leaning more towards Robert Rodriguez's outlook, but I will let the market guide me in my positions. Disclosure: I also own Petrobras.

Kiplinger.com: Heebner's World View.

Quotes:

Ken Heebner played the market like a fiddle in 2007. His CGM Focus fund (symbol CGMFX) gained nearly 70% to November 12 (when the January issue went to print), crushing the S&P 500 by 65 percentage points. As of December 17, the fund was up 66%. We visited Heebner at his office, high above Boston Harbor, to get his take on the current environment.

Although the U.S. housing market is mired in a depression, says Heebner, he thinks the economy will still escape recession in 2008. "It really takes a sledgehammer blow to turn this economy down, and I don't think the housing market itself is that blow," he says.

....

His favorite sectors -- energy, industrial raw materials, infrastructure builders and agribusiness -- satisfy the voracious appetites of fast-growing emerging markets. For instance, he recently had 30% of his fund's assets in oil-production and oil-services companies. "As people go from bicycles to motorcycles to cars, there is a big increase in fuel consumption," he says.

Heebner is bullish on Petrobras, an oil giant half-owned by the Brazilian government. He reckons that Petrobras will be able to raise production significantly over the next five years, based on deep-water offshore discoveries. It announced recently that one of its deep-water sites may contain up to eight billion barrels of oil and natural-gas equivalents. Heebner also likes oil-services outfits, such as Baker Hughes and Schlumberger, that are able to sell globally to national oil companies, such as Saudi Aramco. "The oil-services company has really replaced the international oil company as the Western face of oil production," he says.

Fortune: The best stocks for 2008.

Quotes:


Petrobras

We're on record as saying that $95 a barrel is not a sustainable price for oil. Yet The Hottest Fund Manager in America - a.k.a. CGM's Ken Heebner- now has us hedging our bets.

For those unfamiliar with Heebner, understand that his stock picking over the past eight years has been genius (as it has been for much of his 30-year career). He made a bundle short-selling tech and telecom stocks in 2000. He bet big on homebuilders in 2001 only to get out just before they crashed. He plowed his homebuilder profits into energy stocks in 2005 and eventually doubled down on commodities with a big bet on copper.

The result: His CGM Focus fund was up 66% through early December - while juicing his returns with short positions on Indymac and Countrywide Financial, mortgage lenders whose stocks have been circling the drain.

With that kind of track record, we listened when Heebner laid out an argument that $100 oil is not only coming but will be here to stay. "There is still strong growth in Latin America, China, India, and a host of smaller countries like Poland and Thailand," he says.

That means a need for some 1.5 million more barrels of oil a day. The problem, Heebner explains, isn't just finding another 1.5 million barrels; it's finding them even as some of the most productive oil fields in the world are declining.

Heebner, who is a fanatical researcher, questions the conventional view that OPEC has enough spare capacity to fill much of that void. Heebner cites one Saudi Arabian source whom he declines to name who asserts that output at Ghawa r- a legendary Saudi field that produces about 6% of the world's oil - is declining at 9% a year. (The Saudi authorities vociferously dispute this.)

"So I'm connecting all the dots," Heebner says. "It's a tight situation to start with, but add to that a loss of a million barrels a day for the Saudis, and suddenly it gets very interesting on the upside for the price of oil."

That brings us to Petrobras (PBR), Brazil's largest oil company and the stock Heebner thinks is the best way to play oil right now. With petroleum prices so high, a big risk for oil companies is that host countries will demand a bigger and bigger share of the profits in the form of taxes or royalties. "One way you can avoid this," says Heebner, "is if the government owns half the company you've invested in. That's Petrobras."

Petrobras is cheap enough, at 16 times earnings, that it can be a winning investment even if Heebner is proven wrong about $100 oil. The company just announced a huge find offshore from Rio de Janeiro, a field said to have up to eight billion barrels of recoverable oil. (See correction.)

Morningstar: Top Value Manager Even Gloomier on 2008.

Quotes:

Just when you thought Bob Rodriguez couldn't get any gloomier, the highly regarded value investor has become even more downbeat.

Rodriguez, the hugely successful manager of FPA Capital, recently announced he put a halt to purchases of stocks and high-yield bonds at both portfolios on Dec. 14. His decision is a reaction to the subprime mortgage-induced credit crunch, which he expects to worsen in coming months. Rodriguez says he'll review his actions weekly, but he doesn't anticipate any change in course until February or March 2008.

Rodriguez's move is virtually unprecedented. Many investors, including Rodriguez himself, aren't shy retreating to cash when they're nervous. But few money managers have ever publicly foresworn stocks and bonds altogether.

....

As a result, Rodriguez's prognosis for the economy in 2008 is grim. In his September 2007 letter to FPA Capital shareholders, he wrote that the odds of a recession were 50% or greater. But in a conversation with Morningstar, he noted that as recently as a month ago, he would have placed the odds at 70%. Now he says the odds are closer to 100%.

A chicken in every pot, and $1.5099 oil for every SUV in the garage.

When the race first started, I heard from a lot of people that this woman was going to win. I couldn't see it then, and I don't see it now.

This news byte is hilarious to me either way. Oil prices flit around in the short term, but longer term they are ultimately determined by supply and demand, not by speculators or pandering politicians.

If they really wanted to cut oil use they would put a straight tax on it, a significant one, as they do in Europe. But because they don't like to take tough measures (as we don't - they are elected by us), our politicians do quarter measures like raising the MPG requirements.

Daily news: Elect me and oil prices instantly drop, says Hillary Clinton in Iowa.

Charles Nenner: 2008 to be rough.

In a bit of a hurry, but Charles Nenner predicting a stock market rally into the end of the year, then a pretty rough 2008, and a deflation scare.

There are no absolutes, but under most scenarios, a deflation scare doesn't have bullish implications for oil or oil stocks.

Goldman: Sell Smoke 'em if you got 'em.

Goldman Sachs basically downgrading the US economy, saying there's a 45% chance of a US recession next year, and turns neutral on integrated oil and oil service ['oil service' corrected from earlier 'refiners' sorry.], among other things.

Oh, but they figure everybody will be stressed out enough that they'll smoke more. Think MO. Actually, that stock just makes money no matter what happens, even as they kill their best customers. I digress..

CNBC: Goldman Turning Bearish on US.

More available here.

The fat lady gets a Prius.

Note the prediction of an oil price drop to $60 to $80 over the next several years as consumption actually declines. Note also that Henry Groppe has a track record of solid predictions. (search for his name, I'm in a rush right now).

The Aspen Times: Where virtue, market meet.

Quotes:

And it's happened. Americans have responded. People who don't need trucks to visit the mall are looking for more fuel-efficient vehicles, and the guzzlers are sitting on the lots. Seems to be a recent change.

To find out how recent, I consulted an oil-price analyst — not just any energy expert, but Henry Groppe, a Houston-based veteran and independent thinker. "All our work indicates consumption has actually been flat these three years," he said.

In 1980, when the Iranian revolution sent oil prices soaring, everyone else — Exxon, Shell, the U.S. Department of Energy — predicted that a barrel of oil would soon cost $80, $85, $100 a barrel. In a contrarian forecast, now legend, Groppe said that oil would fall below $15 a barrel. And that's what happened.

Why did his firm, Groppe, Long & Littell, expect the price collapse? "We thought there would be a significant drop in consumption," he said.

Groppe sees consumption dropping now. "Everybody is still in denial about the magnitude of the changes." He predicts the annual average price of oil will fall back to $60 to $80 a barrel in the next several years.

The faulty forecasts, Groppe says, reflect a reliance on the flawed work of the International Energy Agency. His group gathers its own data.

For example, the IEA last year forecast a major rise in production by nations outside of the Organization of Petroleum Exporting Countries. The actual increase was tiny.

"The Saudis made a mistake taking the IEA forecast seriously and cutting production when they should not have done it," Groppe said.

That raised prices to the point where consumers started using less energy. The Saudis want us hooked.

As for the Americans' part in this, Groppe thinks that "the most important thing is more efficient usage — particularly greater mileage performance of our vehicles."

Please God, not the cover.

Making the cover is usually a great contrarian signal. Not there yet, but if oil slices through $100 too easily, look out for the Man of the Year (also a contrarian signal) to be oil or alternative energy related.

Time: Peak Possibilities

Quotes:

In July 2006, the world's oil rigs pumped out crude at a rate of nearly 85.5 million bbl. a day. They haven't come close since, even as prices have risen from $75 to $98 per bbl. Which raises a question of potentially epochal significance: Is it all downhill from here?

Page A1, with a bullet.

It's not really polite for me to quote the whole article, so I suggest you buy a copy to read. And for posterity, of course.

The Wall Street Journal: Oil Officials See Limit Looming on Production.

Quotes:

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.

The world certainly won't run out of oil any time soon. And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.

....

The emergence of a production ceiling would mark a monumental shift in the energy world. Oil production has averaged a 2.3% annual growth rate since 1965, according to statistics compiled by British oil giant BP PLC. This expanding pool of oil, most of it priced cheaply by today's standards, fueled the post-World War II global economic expansion.

....

Compounding the problem: Most of the world's biggest fields are aging, and production at them is declining rapidly. So, just to keep global production at current levels, the industry needs to add new production of at least four million daily barrels, every year. That need is roughly five times the daily production of Alaska, with its big Prudhoe Bay field -- and it doesn't assume any demand growth at all.

Rate of Decline

Mr. Simmons scoffs at estimates that production from proven fields will decline only 4.5% a year. He thinks a more realistic rate of decline is 8% to 10% a year, especially because modern technology actually succeeds in depleting fields faster.

If he's right, the industry needs to add new daily production of at least eight million barrels -- 10 times current Alaskan production -- just to stay even.

Will the wolf bull survive?

A very serious question. Trendlines, support lines, and the next week or two are very important, as are stop losses.

Barron's: Are Energy Stocks Out of Energy?

Quotes:

THE AMAZING RUN IN THE ENERGY SECTOR has hit a ceiling. While the much-ballyhooed $100 per barrel price for oil is very near, it looks as if it is going to have to wait just a while as the market shakes out some of its excesses.

....

The questions now are, "How far down can the ETF fall?" and "Is the energy bull market over?"

The answer to the latter question is "no." The long-term trend is still very much in place and the trendline that defines it can help us answer the former question. A correction of another five or six points would place the ETF squarely on that trendline, as well as on key chart support from last summer. In other words, a drop to the mid to high 60s should be viewed as a buying opportunity at this time.

....

If we make the fundamental assumption that energy demand is not going away and the technical assumption that long-term trends are still intact then we have a sector to watch for bargains in the near future. The only caveat is that energy stocks are still stocks and will be affected by the major trend in the stock market. If you don't think the market is heading into a bear then energy stocks should provide opportunity soon.


CNBC: Commodities Bubble?

Louise Yamada, Louise Yamada Technical Research Advisors.

Quotes:

We think that commodities are still in structural bull markets, so, I would say correction at this point, because the overall market has been looking like it's wanting to correct.


On the bear case, Jim Melcher, up 175% this year on bets against subprime and housing:

NY Sun: Talk of Worst Recession Since the 1930s.

Quotes:

Mr. Melcher, a market bear, had some pretty discouraging words. "What I think is not good for the country, but good for me." he says. His basic advice to the country's roughly 80 million stock players: Run for the hills — the worst is far from over. An investor's stock portfolio now, he believes, should be only about half of what it might normally be.

With the housing market in a state of collapse — and he says he believes it is far from over — Mr. Melcher argues that average homeowners will not be able to withstand the kind of recession he sees, given the added burdens of rising energy and food costs, and continued deterioration in the credit markets.

....

Asked how he could conceivably give credibility to such an ominous forecast, Mr. Melcher observes: "I've never seen a market with more risk and what's significant is that risk is not yet priced in."

Given his grim expectations, he says there is no equity market in the world he would play right now. "When the American market goes down, other equity markets around the world should follow," he says.

As of now, his portfolio is pretty much devoid of stocks, save for an exchange-traded fund focused on leading companies in oil services, which he regards as an ongoing growth industry. The ETF, the Oil Services Holders Trust, trades on the American Stock Exchange under the symbol OIH. Although enthusiastic about the industry's growth prospects, Mr. Melcher says he would be reluctant to recommend oil services stock because he believes the price of oil could easily drop 50% in the recession he envisions.

See Dick Run [From the Financials].

In case you get the urge to buy the financials. He's not advocating shorting, but he sure isn't buying them either.

Bloomberg: Dick Bove of Punk Ziegel.

John Roque: Oil Good, Financials Bad.

Bill Miller of Legg Mason called the other day for buying the financials. That was a call he must have placed from his yacht off a very sunny coast somewhere. Though some of them may have seen the worst of their downside, I'd say financials have a long road ahead of them. Jim Rogers says avoid the financials like the plague, and apparently he's still short.

John Roque of Natexis Bleichroeder is a technical analyst, he looks at charts to try to determine trends.

CNBC: Fast Money Chartology.

Quotes:

"We agree that the financials now, and this might be a bold call, are actually akin to what the semis were in 2000 when they broke. The Street wasted a lot of energy and time trying to pick the bottom, the better thing to do is just to leave them alone, they're going to be underperformers for a long time."

....

"The trend for oil, for gold, for silver, for all commodities remains up. The last three major commodities cycles are 14 years in length. You could start this one in 1999, this is the eighth year, if history is some guide, we still have some time."

$94 oil? Still sorta cheap..

Somebody forgot to mention that:

- crude oil, natural gas or coal is an input to some (many?) of the 'alternative' fuels.

- most of them don't scale well, particularly not to the volumes we use (currently..)

- the current infrastructure was built for and around oil; if you need to build an infrastructure for an alternative, you're going to have to factor that into the cost too

There's always the possibility of dramatic breakthroughs, but oil is still amazingly useful and relatively cheap, as Matt Simmons would be quick to point out.

Wall Street Journal: Biofuel Costs Hurt Effort To Curb Oil Price.

Quotes:

Rising costs of biofuels and other alternative energies are making them less viable as substitutes for crude oil, a development that could frustrate efforts to bring oil prices down in the years ahead.

A few years ago, many energy economists predicted that higher oil prices would ensure the success of alternative energies such as biodiesel or wind power by making them more financially attractive. In many cases, though, the opposite has occurred: Even as crude-oil prices approach $100 a barrel, some alternatives look less attractive than in the past.

One reason: Energy demand is now so intense that supplies of just about every kind of fuel are in short supply, driving up prices of the raw materials involved in making many alternative energies. Some biofuels also rely on agricultural commodities that already are facing higher demand as foodstuffs, a situation which drives up prices further.

The problem is most acute for crop-based alternative fuels, like ethanol and biodiesel, though it has also proved true to some degree for solar power, nuclear power and other competing energy sources.

Biodiesel, a fuel made from farm crops like soybean oil and palm oil, was in some cases supposed to be economically competitive with crude-oil prices as low as $50 a barrel, according to analysts who studied the industry.

But a sharp rise in the price of biodiesel raw materials -- including a more than 90% jump in palm-oil prices over the past three years -- has dramatically altered the economics of the industry. M.R. Chandran, former head of the Malaysian Palm Oil Association, says crude oil would now have to be as much as $130 a barrel before palm-oil-based biodiesel is competitive.

Supply constrained = peak?

This Bloomberg article is about coal, but what I find interesting is the comparisons between coal and oil use and prices dating back to 1998 and 2002.

Both coal and oil are energy sources, but they are not perfect substitutes for one another; coal is used mostly for generating electricity, while oil is mostly used for transportation. However, a growing world economy would (and has) demanded more of both.

Economics tells us: With demand up, prices or supply should rise. If prices get too high, demand will likely fall.

While apparently coal use (demand) has grown 27% since 2002, or three times faster than crude, oil prices have risen much more than coal; according to this article, from roughly parity in 1998 to where oil is now 5 times as expensive as coal.

So coal supply is growing in response to the price rise.

With oil on the other hand, we are seeing a much larger price response (rise). This suggests supply is a problem (i.e. supply has not risen in response to much higher prices), and demand is, so far, not backing off much.

Those pundits who believe the oil price rise is unjustified/temporary suggest that the oil price rise is due to (pick any 3):

- speculators
- terrorist/war premium
- OPEC
- oil companies manipulation
- oil companies refusing to invest

We can't rule those out, and they all probably add a little something to the mix, but these facts suggest that supply is the constraint, just as it would be as we get closer to a global peak in oil production.


Bloomberg: Gore Nightmare Wins as Europe Pays to Ship U.S. Coal.

Quotes:

Now that the price of coal is at a historic low relative to oil, there's no stopping consumers and producers alike from embracing Al Gore's nightmare.

A ton of U.S. coal is so cheap at about $47 that European utilities will pay $50 to ship it across the Atlantic, according to Galbraith's Ltd., a 263-year-old London shipbroker. While oil and coal cost the same as recently as 1998, West Texas Intermediate crude is five times more expensive after climbing to a record $96.24 on Nov. 1.

Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc., the three biggest U.S. coal companies, forecast the largest increase in exports in 20 years, degrading the call for a moratorium on coal plants by former U.S. Vice President and this year's Nobel Peace Prize winner Al Gore. Coal use worldwide has grown 27 percent since 2002, three times faster than crude, said BP Plc. U.S. East Coast coal has risen 71 percent, while oil tripled on the New York Mercantile Exchange.

``Coal is by far the cheapest fuel because there's no price on how much damage it causes,'' said John Holdren, a Harvard University professor of environmental science and director of the Woods Hole Research Center in Falmouth, Massachusetts. ``Unless you get policies to put a price on carbon dioxide and other emissions, no other plants can compete.''

U.S. coal prices are equal to $1.98 for each million British thermal units of energy, compared with $12.51 for fuel oil and $6.91 for natural gas, data compiled by Bloomberg show. A million British thermal units is the equivalent of eight gallons of gasoline.

It's Hard Out Here for a Peak Oil Pimp.

Actually, with $90+ oil, and articles like these, it's not so hard anymore. I used to make a proactive effort to try to explain the concept of peak oil and the possibilities of oil investing at work, in personal conversations, at dinner parties, but I found people were rather blase about the idea, for a variety of reasons. [Though some co-workers did eventually invest and make some nice money. Though at that point it could be more attributed to trend following.]

Now I just blog and generally keep my mouth shut, unless somebody else brings it up.

International Herald Tribune: IEA says oil prices will stay 'very high,' threatening global growth.

Quotes:

The rapidly growing appetite for fossil fuels in China and India is likely to help keep oil prices high for the foreseeable future - threatening a global economic slowdown, a top energy expert said Wednesday.

The unusually stark warning by Fatih Birol, chief economist of the International Energy Agency, about the impact of Asia's emerging giants comes as the agency prepares to issue its influential annual report next week, which will focus on China and India.

In preparing the report, Birol said he had experienced "an earthquake" in his thinking.

"China plus India are going to dominate growth in the oil markets," Birol said during an interview at an oil industry conference. During the past 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone.

Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia.

Crude Realities with Matt Simmons.

Interesting interview, particularly the fact that the CNBC anchor, Becky Quick, keeps overtly referring to "peak oil".

Sea change? I think so.

$100 oil will do that to you, I suppose, as will Matt Simmons' calculations that fair value for oil is, oh, around $300 a barrel or so.

CNBC: Crude Realities.

Energy is early in the cycle.

CNBC: Jerry Castellini

Jerry Castellini, President/CIO at CastleArk Management talks about the Fed, housing and then oil.

Quotes:

"This oil move, it's ironically still in that debate phase, where people are still trying to debate where $50, or $30, or $60; the reality is the stuff has to be priced at $100 to $200 over the next 10 years to attract enough capital to keep it flowing."

....

"It's still way early, Mark. This is no different than the retail/consumer space in the 80's, or the tech space in the 90's. This is a 10+ year cycle. We haven't even found that price point yet where consumers will stop using it."

[Maybe soon enough we will..]

Kenneth Heebner, CGM Capital Management, highlights one of his favorite stocks, Petrobras.

CNBC: Kenneth Heebner.

Alberta Royalty "Adjustments".

If you haven't already heard, Alberta wants to raise the royalties oil and gas producers are paying in the Canadian province. The theoretical fly in the ointment for the government is that several producers, among them the largest producers from oil sands, Suncor and Syncrude, have contracts that extend until 2015 or so that stipulate their royalties. [I believe Canadian Natural Resources also has a deal.] But as the energy minister of Alberta makes clear in this video, while there won't be unilateral adjustments to these contracts by the government, they are going to figure out a way to get their money one way or the other.

The clear message of this and the various other adjustments being made around the world: If you choose to invest in oil and gas producers, spread your money around. And note that as royalties rise, development hurdles usually get higher, some projects become potentially uneconomic, timelines extend, etc. This is thus bearish for some affected producers, but may be bullish for others elsewhere, as well as for oil prices in general.

Bloomberg Video: Knight of Alberta.

It's not easy being printing the green.

Come on Jim, tell us what you really think..

Bloomberg Video: Jim Rogers.

Quotes:

"I would urge everybody listening to your show to figure out ways to start getting money out of the US dollar.."

"We now have a madman at the head of the Federal Reserve.."

"... now America's given him the printing presses, and he is running them as fast as he can."

------------------------------------------------------------------

I'm not sure Bernanke has much choice. We've got a leaning tower of Pisa: too much debt, sliced and diced into too many derivatives, slipped into too many places. Jim Rogers advocates no more rate cuts, and a recession to clean out the mess. [Which is a heck of lot easier to advocate when you're not a working stiff.] He's looking for a Fed head with the backbone of Volcker, but I'm not sure you can be a Volcker, or even a demi-Volcker, in this highly visible media age.

The flipside of the lower dollar is it makes our exports more competitive. Exports seem to be the likely explanation why the whackage in housing hasn't taken the toll so far one would expect.

Somebody wake up Hicks.

Via The Oil Drum, a link to a copious set of notes from the recent ASPO Conference in Houston. The associated slides from the presentations are here.



P.S. The quote is from Aliens.

Porsche. Oil. There is no [easy] substitute.

This is a very interesting article and research paper on energy alternatives. The stock market clearly supports solar and doubts ethanol, and the data in these support those views. We're a long way off from the vision of solar charged vehicles on a mass scale though.

MSN Money: Shuck the ethanol and let solar shine.

Quotes:

New research by a University of California petroleum engineering professor suggests that worldwide crude oil supplies will start to run so low over the next nine years that resource-blessed countries like Saudi Arabia will begin to hoard them for domestic use instead of exporting -- and states with large reservoirs of natural gas, like Montana, will seek ways to avoid sharing with less-advantaged neighbors like Oregon.

Attempts to forestall the political and economic damage by turning aggressively to agriculture for "renewable" transportation fuel in the form of ethanol will prove futile, according to professor Tad W. Patzek, as new calculations show that the entire surface of the Earth cannot create enough additional biomass to replace more than 10% of current fossil fuel use.

....

One better solution is solar energy created at the municipal level by massive photovoltaic cell facilities, at the street level by home-based grids and at the transportation level at lots where electric vehicles' batteries can be charged. Photovoltaic cells lose only about 80% of the sun's energy to dissipation, making them at least 100 times more efficient than ethanol after the fuel cost of growing and refining the biomass feedstack is accounted for.

Deffeyes: It's here.

I have to give credit where credit is due: Kenneth Deffeyes' book "Hubbert's Peak" was my first introduction to peak oil. And what an eye opener it was!

Below is a recent lecture where he makes the case that we're right at the peak.

Whether he's got the timing right or not, we won't know for a bit, but thank you Kenneth Deffeyes for bringing it to our attention.

Kenneth Deffeyes: "Peak Oil: Here and Now".

Boone Pickens: $100 before $80.

Quite simply:

With production now of 85 million barrels of oil a day, and a 5-6% a year production decline going forward, Boone Pickens says we're going up until price kills demand.

Fox Business: Pickens on Oil

$87 Oil? Still kinda cheap.

When you compare to the 'alternatives', it makes you aware of just how valuable oil, and by extension natural gas, really is.

WSJ: Ethanol's Water Shortage.

Quotes:

Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that's only a fraction of ethanol's total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O. Backers of the Senate bill say that less-thirsty technologies are just around the corner, which is what we've been hearing for years.

....

Ethanol's big environmental footprint is not limited to water, because biofuels like ethanol are highly inefficient. In September, the Chairman of the OECD's Roundtable on Sustainable Development released a report entitled, "Biofuels: Is the Cure Worse than the Disease?" Authors Richard Doornbosch and Ronald Steenblik compared the power density of different energy sources, measured in energy production per unit of the earth's area. Oil -- because it requires only a narrow hole in the earth and is extracted as a highly concentrated form of energy -- is up to 1,000 times more efficient than solar energy, which requires large panels collecting a less-concentrated form of energy known as the midday sun.

But even solar power is roughly 10 times as efficient as biomass-derived fuels like ethanol. In other words, growing the corn to produce ethanol means clearing land and killing animals on a massive scale, or converting land from food production to fuel production.

Party On, Kurt.

McDep.Com: Peak Oil is Here. [PDF]

Quote:

"A peak in world oil production under 85 million barrels daily (mbd) now looks like fact.."

Party On, Marion.

CNBC Video: Oil on the Rise.

Quote:

"Longer term, these [oil] prices are going higher, and this is kind of a wake up call, based on this whole peak oil theory that we're really starting to see come to fruition."

(BTW: Marion Hubbert King.)

Tightening the screw.

CNNMoney: America's top oil suppliers tightening taps on exports: CIBC World Markets.

Quotes:

Six of the largest oil suppliers to the US are poised to cut their global exports by nearly 2 million barrels a day by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada's oil sands.

The projected cut, amounting to seven percent by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia, reflects the growing struggle in these countries to grow production and manage their own soaring rates of oil consumption, says Jeff Rubin, chief market strategist and chief economist, at CIBC World Markets, who will discuss his latest findings at the firm's Industrials Conference in New York City.

The trend of oil producing countries becoming major oil consumers extends beyond the top US suppliers, says Mr. Rubin. When similar conditions are factored in among the other major oil producers including OPEC, the supply crunch deepens to 3 million barrels a day, or an eight percent cut in global exports. "Soaring domestic demand is cannibalizing export capacity, and will increasingly do so as productions plateaus or declines in many of these countries."

Last year, OPEC members, along with independent producers Russia and Mexico, consumed over 12 million barrels of oil a day, roughly 60 percent more than China and slightly more than all of Western Europe says Mr. Rubin. As a group, they now are second only to the U.S. in terms of market size. Much of the demand in these countries is driven by heavily subsidized prices that keep a barrel of oil down to a cost of between US$10 and US$20. "The cheap supply is fuelling some of the fastest growth in domestic demand anywhere in the world," says Mr. Rubin.

Historical Bull and Bear Markets for Oil.

I found the below study from Ticker Sense/Birinyi Associates of oil bull and bear markets dating back to 1986 enlightening.

What I find particularly interesting is how the bear markets are consistently down about a third, in terms of both the average decline and the median decline being around 30%. Of the past three bear markets (since 2003, when things really got kicking), two of the declines are nearly spot on 33% (-33.27%, and -34.47) and the other is -26.21%.

There is much less consistency in the rallies, where the average change is 62.89%, and the median is 37.30%, which basically tells us occasionally we get some huge rallies.

The latest rally dates to 1/18/07, has lasted 245 days, and we are up 62.32%.

Out of curiosity, I looked up my closest post to that date, which turned out to be 1/17/07, and was titled "Let the beatings, er, healings begin.". Not a bad day for that call!

Ticker Sense: Historical Bull and Bear Markets for Oil.

Subprime? CDOs? Still #$@%&^.

CNBC Video: Cashing in on Subprime.

James Melcher, portfolio manager at Balestra Capital Partners, is up 124% this year due to his bets against the housing market and subprime loans in particular.

His thoughts going forward:

The Fed cut forestalled a financial panic, and likely stalls off a recession for a while, but can't prevent it. Unfortunately, by cutting rates, the Fed could cause a possible currency crisis and much higher inflation given the weaker dollar. Meanwhile, the housing market continues to deteriorate; we're only in the 3rd or 4th inning of this. Ultimately, the subprime mess will move up the chain, affecting Alt-A [subprime loans are the lowest rated, Alt-A are supposed to be one step up the quality chain, while prime are the best] and to a lesser degree prime mortgages. The Fed doesn't have enough ammunition to fight this problem.

He owns: gold, foreign currencies, short term Treasuries and continues to be short the mortgage market.

TheStreet.com: The Credit Crisis Could Be Just Beginning.

Quotes:

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes.

....

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.

Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.

Ursa Major

Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.

The cause: Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.

He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.

Alternatives to oil as transportation fuels?

CNBC's Maria Bartiromo asks the International Energy Agency's exec. director for the best alternative to oil as transportation fuel and his answer is IEA's analysis shows that ........ is the best. Can you guess what?



Answer: Conservation.

Uh-oh.

CNBC: Taming Oil Prices.

We won.

Dr. James Schlesinger, former US Energy Secretary and CIA Director puts it well: We won.

More from Boone Pickens today also:

CNBC Video: Boone Pickens.

Worth catching.

Boone Pickens on CNBC last Thursday, saying he thinks the fourth quarter of this year is going to be very exciting, as demand of 88 million barrels a day can't be serviced by 85 million barrels a day of production. He, like everybody else, is talking potential recession.

CNBC Video: Oil on the Rise.

Vinod Khosla sees the future and it's cellulosic ethanol and solar. And soon, he says, like in 5 years. The proof is really gonna be in the pudding on this call.

CNBC Video: Clean Tech Bets.

Buy when the cannons are roaring.

I'm not a big fan of low quality bonds, otherwise known as junk bonds. When I put money in bonds (via mutual funds), I do it for safety, so I'm usually in Treasuries or something similar, which have a very high degree of credit safety. I can't remember the last time I owned a junk bond fund, actually.

So with the housing thing really starting to come home to roost, with the whole mortgage/CDO market seemingly on the brink of disaster (or already in, according to some), and with credit spreads widening and the whiff of recession in the air... I decided it's time to start dipping into the junk bond waters.

I picked a fund (Pimco High Yield), and I'm dollar cost averaging in every month, probably for the next 12-18 months. At the same time, when I hear really, really awful economic/credit market news, I'll be throwing a little bit more in via extra payments.

The logic, basically:

Try to buy what everybody else is running from. But do so carefully.

Bloomberg: H&R Block May Close Loan Business as Losses Double.

Quote:

``The loan-originations market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s,'' Chief Executive Officer Mark Ernst said on a conference call with analysts. He said the credit markets are in ``turmoil.''

Bloomberg: U.S. Stock-Index Futures Retreat; Goldman, Merrill Decline.

Quote:

``We don't have a perfect idea of how deep or widespread the subprime issue will be,'' said John Forelli, who helps oversee $7 billion at Independence Investment LLC in Boston. ``Investment banks are caught in the crosshairs of this financial crisis.''

Update 08/31/07:

Reuters: Moody's president sees unprecedented illiquidity.

Quotes:

The credit market is experiencing an unprecedented loss of confidence due to the lack of transparency over where exposures lie rather than underlying credit quality problems, Moody's Investors Service President Brian Clarkson said on Thursday.

"I've been in the marketplace for 20 years ... what we're experiencing is an extreme lack of confidence and lack of liquidity. I have never seen this before," Clarkson told Reuters in an interview. "A lot of it has to do with transparency: it's not clear who owns what."

There are also questions over valuations of illiquid securities, he said, although not necessarily from a credit standpoint. Some structured vehicles -- such as the Cheyne Finance fund run by British hedge fund Cheyne Capital Management -- have been forced to sell assets due to losses even though the securities they hold have not been downgraded.

"It's not that a lot of the things people are holding aren't money good, they are. If you hold them to maturity they will pay interest and principal on a timely basis."

Shift to neutral.

You know things are getting interesting when Erin Burnett paraphrases somebody's words from "a whole lot worse" to "a hell of a lot worse".

CNBC Video: Credit Contagion: End in Sight?

Although Ken Heebner sounds calm-ish, this thing appears to be spreading pretty quick, and the 'market neutral' funds blowing up trend has a bit of smell of the 'portfolio insurance' blowup of the crash of 1987.

Is the worst over in housing?

Calculated Risk raises the question of whether the worst might be over in housing based on the BusinessWeek magazine indicator.

Even more promising, Trump Mortgage (I kid you not) has got Donald Trump up in arms over something. If only we could get a headline they are filing for bankruptcy; that, I guarantee you, would mark the bottom.

CNBC Video: Trump Dumps Mortgage Co.

Jim Rogers on CNBC.

CNBC Video: Subprime Shockwave Hits Equities.

Jim Rogers on end of the debt bubble. He believes the Fed won't cut rates, but if it does, he believes inflation will get out of hand and the dollar will collapse.

Hot or Not?

Jim Cramer had a reputation for having a seriously volatile temper and nature when he was at his hedge fund. Thankfully, he had his wife to contain his baser instincts at a couple of important moments in market history. [He refers to her as "the Trading Goddess".]

So when you watch the first video below, in which Cramer basically explodes about the current market conditions, you have to wonder if you're watching Cramer unbound or instead seeing Cramer the actor hamming it up. And while I'm sure he's wound up, I also think it's an act. If you've seen Stop Trading with Cramer and Erin before, it's kind of the Laurel and Hardy show, with the straight [wo]man and the funny guy, and here the funny guy got a little too into the act. The second video is Cramer explaining himself in a calmer manner.

Is it really this hot? Yeah. All the craziness in the housing market that culminated in the last two hyperactive years is coming to roost in one or two hot weeks in August 2007.

Next week should be very interesting.

CNBC Video: Cramer: Bernanke, Wake Up.

CNBC Video: Cramer on Bear Stearns.

PS. Erin Burnett - hot.

What's the frequency, Kenneth?

CNBC Video: Mortgage Mess.

Kenneth Heebner, manager of the CGM funds, is up 30% this year in his Focus Fund, and believes that the mortgage mess in the US is isolated, and that it, combined with other factors, might end up being bullish for the economy. His reasoning: mortgage losses are contained in hedge funds and pension funds (gee, great), the ensuing mess might park the Fed in neutral or force it to reverse, and the global economy continues to do well. [Note: He says if he hears that large financial players are under stress his position would change, but so far there are no major financial players who appear to be in trouble.]

He's bullish on oil service, selective oil companies, infrastructure plays, and global mining; i.e. companies benefiting from the global boom and the tightness in supply of various commodities.

Jim Rogers says what everybody's thinking.

Bloomberg: U.S. Housing Is one of History's `Biggest Bubbles,' Rogers Says.

Quotes:

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, who predicted the start of the global commodities rally in 1999, said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

....

``This is only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst we've had cleaning it out.''

------------------------------------------

I've been meaning to read the book Bubble Man, about Alan Greenspan, but I've got a few books to go before I get to it.

Otis!

Okay, no guys named Otis [trying to stay with the Animal House theme of the month] that I could find had much to say about energy or oil. I did find a guy named Phil, which is kind of the white guy equivalent of Otis.

Also, a coupla Jeffs, a John, a Matthew, an Adam, and an Otter, er Peter, with the funniest headline of quite some time.

Investor's Business Daily: Oil Could Soar Past $100 On Demand, Some Argue.

Quotes:

"My line right now is that we're headed to triple-digit oil prices within three or four years and the first digit is not going to be a 1," said Philip Verleger, an economist who heads energy consultancy PK Verleger LLC.

He cited "huge" pent-up demand in China and the rest of Asia, lack of growth in production capacity and reduced investment in refineries amid local resistance to new sites, and worries about measures to fight global warming.

"We've created a situation where prices are going to go up a lot," said Verleger, a respected forecaster.

Bloomberg: $100 Oil May Be Months Away, Not Years, Say CIBC, Goldman.

Quotes:

Jeffrey Currie, a London-based commodity analyst at the world's biggest securities firm, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year.

``We're only a headline of significance away from $100 oil,'' said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. ``The unrelenting pressure of increased demand has left the market a coiled spring.'' New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said in a July 20 interview.

....

``Ultimately, the key to the outlook going forward is when will Saudi Arabia ramp up production,'' he said in an interview. ``If you have a situation in which inventories globally get drawn to critically low levels, the volatility in this market is likely to explode, which significantly increases the probability of $100 oil.'' Oil might slip to $73.50 if OPEC were to start producing more now, he said.

....

The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto.

``Prices have doubled, and demand is alive and well and accelerating,'' he said in a July 18 interview. ``The argument that rising prices would choke demand and bring increased output is falling to the wayside.''

....

The cost of finding and pumping oil is rising steadily, convincing analysts such as Rubin and Deutsche Bank AG chief energy economist Adam Sieminski that higher prices will last. Shortages of deepwater drilling ships and rigs has pushed daily rents to records, and the skilled workers needed to run rigs, weld pipes, pilot vessels, fix refineries and build oil-sands projects command ever-higher wages.

``Three years ago we were calling for $30 oil, then $35 and then $40 oil,'' said New York-based Sieminski, who last week raised his forecast for the average price of oil in 2010 to $60 a barrel from $45.

``I've gotten tired of increasing these forecasts in $5 increments,'' Sieminski said in an interview. ``Something has happened. Costs have continued to escalate, and the geopolitical situation has gotten worse.''

The $60-a-barrel forecast for 2010 is 15 percent higher than the average analyst forecast, Sieminski said. The projection probably will turn out to be too low, he said.

------

The most inadvertently hilarious headline I've seen in a while:

Bloomberg Video: Beutel of Cameron Hanover Doubts Oil Will Reach $80 This Week.

------

PS. Note that when the "Oil is going to $100" noise reaches a crescendo, we tend to peak and go down. So be vigilant.

Toga! Toga!

[Okay, so you don't get the title. Party on.. Dorfman.. Animal House. Yes, the jokes are obscure and a little dopey, but I've been blogging on energy stocks for 2 and a half years now and I've got to do something to amuse myself.]

NY SUN: Energy Party Is Far From Over.

Quotes:

Mr. Gaines, a former crack institutional energy analyst, a one-time adviser to Carl Icahn in his hostile energy takeover attempts, and no stranger to this column because of his consistent stock-picking prowess, reckons that if you equate energy shares to the human life cycle, the stock group is probably only in its 20s.

Energy fundamentals remain very positive, he notes. "It's Economics 101; you've got growing demand and diminishing supply," Mr. Gaines says. "American production is not being replaced. We, as well as China and India, have an insatiable oil appetite. America still doesn't have a viable energy policy, and given current conditions, the terror and supply disruption premium of about $15 a barrel is not about to disappear any time soon."

In recent years, we've seen forecasts of $100-a-barrel oil from the likes of Goldman Sachs, Merrill Lynch, and Boone Pickens. Mr. Gaines, currently CEO of Dune Energy, a Houston-based oil and gas producer, figures that the elusive triple-digit target is likely to become a reality over the next 12 months. Oil closed Friday at around $73.93 a barrel.

Given the surge in energy stocks, Mr. Gaines, who is said to have a personal equities portfolio in excess of $100 million, about 90% of which is in the energy sector, has easily been one of the best stockpickers in this column. Three of his current favorites, each of which he owns, are Allis-Chalmers Energy, Chesapeake Energy, and Comstock Resources. He views all three as potential 25% to 50% gainers over the next 12 months.

Party on, Boone.

[Note to the WSJ: Page A2?]

WSJ: Potential Energy Crunch May Bring Other Fuels to Fore.

Quotes:

World oil and gas supplies from conventional sources are unlikely to keep up with rising global demand over the next 25 years, the U.S. petroleum industry says in a draft report of a study commissioned by the government.

In the draft report, oil-industry leaders acknowledge the world will need to develop all the supplemental sources of energy it can -- ranging from biofuels to nuclear power to oil extracted by unconventional means from the oil sands of Canada -- to meet soaring demand. The surge in demand is expected to arise from rapid economic growth in such fast-developing countries as China and India, as well as mounting consumption in the U.S., the world's biggest energy market.

The findings suggest that, far from being temporary, high energy prices are likely for decades to come.

Oh my God.

Joe Kernen utters the above priceless quote when Boone Pickens first appears on the screen and it's apparent the interview is being conducted with Mr. Pickens in gym attire and with his foot up on his desk.

I'm not sure what exactly that suggests; a man of 78 and still on top of his game having a bit of fun, or a ton of hubris from a guy who's been right so long he's getting cocky. I think the former. [At least he didn't end with "Party on, dude".]

Predictions: $80 by next May, but first possibly a dip to the high sixties due to an excess of oil around right now. He suggests people not be short oil.

CNBC TV: Oil May Dip Slightly, But Will Hit $80 by Next May: Pickens.

Quotes:

"What I see from the producers’ side is that the Saudis, the Russians -- all the producers -- want a higher price for oil and what they’re searching for is how much can the market stand, how much can the world economy stand on price. They’ll keep pushing it on up as far as it will go.”

Pickens shorted natural gas last year because there was “too much gas” -- and said the action “made our day.”

“We got a late start to the summer this year, so gas is still suffering,” Pickens said. “I think gas will suffer on into 2008. All those things will clear up with time. A few months in a commodity market going down or up just scares hell out of everybody… You need to look at it on a longer-term basis than that. At the same time, if you’ve got your neck stuck out in a commodity market, you can lose a lot of money real quick.”

Slightly Off Topic: Carpe Diem.

Newark Advocate: Risk avoidance should not be the overriding concern in politics, life

Quotes:

A week earlier at my son's high school graduation, a different speaker, the colorful entrepreneur and oil man T. Boone Pickens, told of his own boom-and-bust years and said he'd learned as much from failing as succeeding. Now approaching 80, Pickens said he'd trade places with any 18-year-old graduate, giving up all his wealth, all the planes, all the fame and accolades for another shot at life's promise. He sounded eminently and passionately believable.

Party on, Lakshman.

It's always a good time to check in with the Economic Cycle Research Institute to see how their economic indicators are doing. Pretty good, it turns out.

Party on, Boone.

ECRI: "US Cyclical Outlook" Updated

Quotes:

20-June-2007

(ECRI) - ECRI released its U.S. Cyclical Outlook to professional subscribers today.

U.S. economic fundamentals are less risky than many apprehend. In fact, our leading indexes suggest that inflation will remain restrained as growth firms.

Today's release also includes a detailed analysis of U.S. inflation suggesting that the recent adjustment in the bond market is a recognition of an upcoming firming in economic growth, not an upswing in inflation.

The difference.

WSJ: Robust Oil Demand Fuels Prices. [$]

Quote:

Last year's high was reached as Israel battled Hezbollah in Lebanon and amid fears of a showdown between Iran and the West. "The difference this year is that you are reaching $70 a barrel on fundamentals" of oil supply and demand, said Jan Stuart, energy economist at UBS Securities LLC. "Demand is growing faster. Supply is not keeping up. Inventories are trending lower, not higher."

CNBC on the case.

Some stuff worth checking out on CNBC.com today:

CNBC: Profiting on Energy.

CNBC: Oil Prices Stay Above $65 on Iran, Gasoline Concerns.

Quotes:

Oil prices have more than trebled since the start of 2002 and hit a record $78.40 in July 2006. But the world economy has continued on a growth path. The president of one of the world's top oil trading houses said he believed prices were nearing the point of demand destruction, however.

"My view is that we are pretty close to demand destruction -- we are within 10-20% where we see reduced demand rates of growth," said Ian Taylor, president of Swiss-based Vitol Group, at a conference in Singapore.

So many breakouts, so little time..

I was flipping through a number of charts earlier, and, no surprise, there are lots of strong looking charts in the energy area, including the XLE and OIH ETFs. A few months ago, someone asked me to highlight more trades, but I'm hesitant to do that for various reasons. Highlight some ideas, yes. Suggest trades, no. [BTW: Nice move on HUSKF so far, $71 to $83, and I still like it.]

These are the stocks that look appealing to me, some of which I already own:

SWN
DNR
OXY
CVX
GSF
ECA
TDW
MRO
PBR
IMO

SWN, OXY and IMO are particularly appealing to me at the moment, and, since I don't own those, I may be adding them, depending on how they trade.

No bubble here folks, move along.

I was in the library yesterday, and I happened upon a magazine I had never seen before, Better Investing, which caters to investment clubs. Flipping through it, I didn't think much of it, frankly. [My personal investment favorites are Barron's, Investor's Business Daily, with a dollop of Smart Money and the Wall Street Journal.] I'm not big on investment clubs either, as the group think aspect of it is the kind of thing I really like to stay away from, particularly with investing. Being a bit of a pain in the ass contrarian, I'm sure I'd get cashed out after not too long anyway.

The April 2007 issue of Better Investing had an interesting article though, a list of the "most popular and widely held stocks among investment clubs and their members nationwide as of early 2007". Not surprisingly, most of the names on the list were names that are pretty familiar to all of us, sort of a mega cap Peter Lynch type list. What I was really surprised by was how many energy names showed up on this list.

So go ahead, take a guess. Of the top 50 stocks, how many would you guess are energy names?

4 or 5 might be a reasonable guess, considering that roughly 10% of the market is energy. But since energy isn't sexy, [you can't go down to the mall and buy Ultra Petroleum jeans, and Grant Prideco doesn't yet make hip replacements], you might low ball it, and say 3. Or, you might go the other way and say "Hey, energy has been going gangbusters for 3-4 years now, and with CNBC having a hot line to Peak Oil Burgermeister Boone Pickens, I'm sure they have 6+."

The answer, as usual: It depends.

If you go by the magazine's main ranking, number of clubs holding the stock, there is exactly... one. Top 50 stocks, one is energy! I was amazed.

Exxon Mobil, the largest cap stock in the world, the best run oil major, the company reporting the most profits of any company in history, is, amusingly, number 14.

If you instead go by the secondary metric, the total value of clubs' holdings, then you get all of two energy stocks. Exxon Mobil at 7, and ConocoPhillips at 33. [Ranked by number of clubs holding it, COP is 79.]

Needless to say, I walked out of the library with a big grin on my face as I thought about how much buying these folks still have to do in the energy sector.

For reference:

Top 10 Stocks, ranked by # of funds holding:

Home Depot
GE
Walgreens
Lowe's
Microsoft
Aflac
Johnson and Johnson
Styker
Bed, Bath and Beyond
Pfizer

Energy stocks on the list:

Stock / Ranked by # of funds / Ranked by total value:

XOM 14 7
BP 63 59
CVX 69 63
VLO 71 71
COP 79 33
BTU 82 80
XTO 89 88
SLB 113
APA 116
CHK 121
BHP 128
HLX 140
NBR 144
DVN 153
SFY 156
SU 170
JOYG 177
KMP 196

Notes: After the top 100, they no longer provided the value rank. VLO, COP, BTU, XTO were noted as new to the Top 100 list and XOM and COP were noted to have advanced 5 or more positions since 2006, so the tide is changing. Note that many of the stocks widely owned by these investment clubs have staff dedicated to encouraging/marketing long term ownership of their stock, which is somewhat less prevalent (in my opinion) among energy stocks. But hey, they're probably a little busy right now.

Boone Pickens in L.A.

Bloomberg Video: Boone Pickens.

From last week. Yeah, I know, I'm a slacker. But it's not like the energy issue is going anywhere.

As I first watched this video, I was distracted and rather amused by the parade of generally high end cars passing by in the background, particularly the BMW 7 Series that nearly backs into another car behind it. Los Angeles, for anybody who's never been there, is a serious car town, and you literally are what you drive. The fun part is that along with an amazing array of the world's more expensive models, you'll also see a lot of older cars, many of them in relatively good condition and driven daily. The roads in LA are pretty gentle and the weather is supportive, so you'll see everything from old Volkswagon Beetles and BMW 2002s to 80's Japanese cars that would have rusted away in other areas, oh, circa 20 years ago.

The other bit of amusement in this video is the fountain running in the background. Ah, how nice it is to forget in LA that, technically, you're living in the desert.

Generally this interview covers familiar ground, but a couple of interesting data points come out: Mr. Pickens believes that the Chevron/Devon Gulf of Mexico deepwater discovery, Jack, will probably not be economical to produce, as it is too deep and had to be fractured to produce just 6,000 barrels a day. Additionally, he says that the breakeven point of Suncor's oil sands production is around $22 a barrel. [I had thought it was closer to $35 a barrel.] Suncor is his biggest single stock position.

Another interview with Mr. Pickens from the LA Times:

LA Times: A future with less oil and more hard choices.

US: We have a weak[-ening] dollar policy.

That's what I'm hearing here.

Reuters: U.S. Treasury's Kimmitt declines dollar comment.

Quotes:

U.S. Treasury Deputy Secretary Robert Kimmitt said he would not comment on the weakness of the U.S. dollar on Saturday after the currency slid to a record low against the euro on Friday.

Kimmitt told reporters that only his boss, U.S. Treasury Secretary Hank Paulson, makes comments on the dollar on behalf of the U.S. Treasury.

"There is only one person who can speak about the dollar... I will leave it there," he said at a conference in Brussels.

The euro pushed over $1.3680, the highest level since the launch of the common European currency in 1999, after a report showed the U.S. economy grew by just 1.3 percent in the first quarter of the year.

"We have made it quite clear to the Chinese that they need to move quicker on their currency, to move to (an) underlying market valuation based on fundamental economic principles," he said during a debate at the conference.

But a weak dollar could put a little juice in our exports as we try to stave off this:

Reuters: Fed's Yellen says U.S. economic downturn possible.

Quotes:

There is the potential for a downturn in the U.S. economy that could have ripple effects around the world, San Francisco Federal Reserve President Janet Yellen said on Saturday.

The U.S. economy grew modestly in the first quarter but should accelerate in the second half of the year, she said in a speech to the American Academy of Arts and Sciences and the American Philosophical Society.

Enumerating the top current risks to stable economic conditions around the world, she said that in the U.S. economy "there is potential for a downturn that could have major spillover effects around the globe." The United States contributes roughly 25 percent to world economic output, she noted.

The U.S. economy expanded at a sluggish 1.3 percent in the first quarter of 2007, the Commerce Department said on Friday, reflecting declines in the housing market and a pickup in inflation. It was the fourth consecutive quarter of sub-par growth in the world's largest economy.

Henry Groppe: Got oil?

National Post: Sands are shifting for oil supply.

Quotes:

The world continues to run rapidly out of oil and natural gas, which points to dramatically higher prices in a handful of years.

That was the message from Henry Groppe, a lanky Texan who advises oil companies and investors around the world about the world of prices. His firm, Groppe, Long & Littell, is based in Houston and was founded after he did stints as a chemical engineer for Saudi Arabia's Aramco, Dow Chemical, Monsanto and Texaco.

"The fundamentals always prevail, which is that the minute you start producing, you are depleting your resource," he told an audience of investors last week at a conference sponsored by Calgary's Pengrowth Energy Trust.

He showed production curves in the North Sea and Mexico that are catastrophically sudden in terms of their declines.
"This has a huge impact on the economies of Britain and Mexico," he said. "Britain became an oil importer this year for the first time in decades."

Oil production worldwide peaked months ago, but figures and prices don't reflect that yet because the production of liquids stripped from natural gas has been filling the gap, he said.

But that potential is peaking, too, which means that "in several years" the world will enter a new era of higher prices.
"The only question is how high will prices have to go before there is a decline in usage?" he said. Price hikes will mean the freeing up of less viable supplies, but there are limits economically and geologically to this, too, given current technology.

"Do we ever run out? Well, 40 years ago we ran out of US$2 a barrel oil; then 25 years ago we ran out of US$10 to US$12 a barrel oil and recently we ran out of US$40 to US$45 a barrel oil," he joked.

Current prices in the US$60- range make oilsands and Venezuela's tar sands viable, and prices will continue rising, he forecasted.

"The issue for the United States is that it uses one-quarter of the world's energy [oil, gas, coal] but has only 5% of the world's population," he said. "As realities intrude and consumption goes from 80 million barrels a day to 120 million [in 10 years], you will see a major shift in all financial and energy markets."

Once More, with Feeling!

Excellent interview with Boone Pickens on EVWorld from earlier this month. I highlight select pieces, but it's worth reading the entire article.


EVWorld: Straight Talk from T. Boone Pickens.

Quotes:

"You take 30 billion barrels out of the world's reserve base and we have not replaced 30 billion barrels since 1985. You're talking about twenty years. You keep drawing down on the world reserve base... and it is happening because you can't find big oil fields anymore. They're just not out there to find."

....


No one has ever asked why we [Americans] use five times as much oil as the rest of the world, he pointed out. "That question is going to be asked more and more. There's no question, but we are going to have to reduce our energy [consumption]."

Queried by Kleindienst what he would do if he were the next energy secretary -- and Pickens joked that he'd insist on being called 'czar' -- he replied that the country is going to need every renewable energy source it can muster, including wind power, which while he's not a fan of the big turbines for esthetic reasons, he is now re-invested in it after an earlier abortive venture in the business.

"Wind is going to be a big deal," he commented. "You're going to have solar, you're going to have wind. You're going to have biodiesel. You name it, you've got it," he drawled. He also said that as energy 'czar' he'd raise the price of gasoline, working to establish a common, worldwide price for gasoline, just as there is a largely global price of oil. He said people who want their SUVs will be able to have them, but it's going to cost a lot to run them.

....

In discussing how the conference attendees can help influence Congress, Pickens responded, "I can tell you that the problems are going to come so fast and the price of gasoline is going to go up so fast here within the next twelve months, they are going to start catching on real quick that you're going to have to do everything you can to cover the base, and you're also going to realize that the supply [of oil] is so tight...

"Matt Simmons, a very, very bright guy that knows a lot more about this business than I do, and Matt Simmons last week sent me an.. email that said the [petroleum supply] system is so tight now. He said that storage is down... inventories around the world are coming down so fast now... everything is getting so tight... that you're going to see oil priced above $80 a barrel [this year]. And he said that if you had some kind of hiccup in the system it could go to $100 faster than a hot knife through butter.

"And I believe that and I think that when that happens, this thing is going to get so serious so fast that you're going to get the help out of Washington. You're going to have these politicians running for president, they're going to start talking about, 'We're going to have to do this, this and this, and all of it is going to help us, us, us in this room. I really believe that's going to happen."

Peter Thiel on Bloomberg.

Bloomberg: Peter Thiel.

To summarize Peter Thiel's views in this interview:

- Continues to believe that ultimately we have a hard landing in housing/consumer led recession in the US due to the aftermath of the housing bubble, though obviously this is taking longer to play out than he thought (he's not alone there - I'm guilty too).

- Bullish on the dollar; believes that the Fed will be unable to lower rates as it has to try to contain inflation and that the dollar is undervalued versus other currencies (references the British pound in particular).

- Bullish on oil, Canadian oil sands stocks (Opti Canada, Nexen, Encana), and oil service companies (Schlumberger).

- Believes China will be a great growth story for the next 20 years, but has no investments there and isn't interested in them as the market is overvalued and the stocks available to invest in are losing money. Believes the best way to invest is via multinationals that export there.

The interviewer raises an interesting question: Could a rise in US exports, and the concurrent stimulation to the US economy that would come from that perhaps head off a looming recession? With the dollar weakening, there is some support to this theory, as a weak dollar gives foreigners more purchasing power in US goods, it also boosts US multinationals foreign earnings when translated back into dollars.

Interestingly, we're not really hearing much squawking on the dollar from the Treasury secretary (ala how they used to roll out John Snow with his "we've got a strong dollar policy" line - boy was that guy a terrible actor). So I'm wondering if perhaps they're looking the other way on the dollar with exactly that idea. After all, a US recession isn't good for anybody, Chinese, Germans or Saudis.

Thankfully, I didn't start a blog on currency trading so this is less of a concern to me, and I personally never trade currencies. [Peter Thiel, on the other hand, was once a currency trader.]

Stay long. And short.

Refiners, natural gas, solar, uranium... the bull looks like it's back.

CNBC: Pickens Tells CNBC Oil Is Heading Higher.

Short the homebuilders? You've got company.

Reuters: Rogers shorts U.S. builders, eyes more losses.

Warren Buffett: Ich bin ein Peak Oiler.

Right scenerio, wrong guys maybe. Ah, so let's try again..

Warren Buffett and Matthew Simmons walk into a bar...

Berkshire Hathaway disclosed over the weekend that it had acquired a circa $3 billion stake in railroad Burlington Northern Santa Fe, and then this morning CNBC reported that there are two other railroads that Berkshire is investing substantial amounts in, to the tune of around $700 million each.

Now, if you take a look at the charts of the various railroad stocks (BNI, UNP, CSX, NSC), you will see that Mr. Buffett isn't exactly acquiring these stocks at rock bottom prices. In terms of historical valuations, they don't look all that cheap either. This is clearly not a prototypical Warren Buffett investment, at least at first glance. But for some reason, Mr. Buffett wanted the railroad industry and he wanted in in a hurry.

The news media is mainly playing this up with the "Warren Buffett believes in the American economy" angle. I think they're all wet.

Now, while I'm sure there is more than one angle to this investment for him, I would wager a large amount of money that as he is more and more aware of the energy challenges the world has, he thus is investing in the cheapest form of long haul shipping that reaches most areas of the country. For one thing, the rails transport much of the coal that's shipped around the country, for another, they are shipping around grains and much of the ethanol (which, in theory, we will see more of in the future). Finally, shipping items by rail verus truck is immensely more efficient, I've read something up to 10 times more efficient.

So while people puzzle over why Mr. Buffett is going gangbusters over the rails, I submit that the following quote from Matthew Simmons has a lot to do with it:

Foreign Policy: Matthew Simmons on Softening Oil Peak Impact.

FP: If you were the secretary of energy right now, what policies would you recommend to President Bush?

MS: If we restructure the way we use fuels, we might be able to get along very well with oil in decline. The single-most energy inefficient way we use oil is large trucks delivering goods over large distances. If you take all the goods that are trucked more than, say, 50 miles, onto railroad tracks, depending on the length of travel, you’d use between 3 to 10 times less energy. If you put them on a marine vessel, it’s even more efficient. So forget about just-in-time inventory. Once you get the large trucks off the road, you make a tremendous dent in traffic congestion, which is public enemy one through five on passenger car fuel efficiency.

P.S. Don't forget his investments in ConocoPhillips, wind power, and ideas about nuclear energy.

Warren Buffett, Boone Pickens, and William Greehey walk into a bar...

How'd you like to be a fly on that wall?

I don't know if these guys have ever gotten together, I'm not even sure if they all drink (Boone Pickens and William, ahem, Greehey, I'm going to go out on a limb and suggest these guys have probably both had a drink or three before), but we can try to imagine the conversation they might have together.

Warren Buffett, CEO of Berkshire Hathaway and one of America's greatest investors (if not the greatest), would probably talk about how he likes to buy companies with compelling businesses and strong, intelligent management at undervalued prices, and with his eye firmly on the long term. He might explain how he is seeking to diversify overseas these days, particularly since he has questions about the US dollar and deficits, and though he generally avoids 'commodity' businesses, has invested in the past few years in oil companies ConocoPhillips and Chinese oil major PetroChina.

Boone Pickens, CEO of hedge fund BP Capital, and perhaps the most famous proponent of peak oil in the financial world, would probably talk of his strong belief in peak oil and that we are right now at the production peak, his high regard for natural gas and Canadian oil sands, and his large stakes in Canadian oil sands producer Suncor, refiners Tesoro and Valero, and deepwater driller Transocean.

William Greehey, former CEO of Valero and architect of it's amazing rise, might then finish up with his current view of the refinery business, which is that with everybody focused on getting the last drop of gasoline out of the barrel, the asphalt side has been neglected and is going to become quite tight in 2007.

What company might they all three agree on?

ConocoPhillips, maybe, though Boone Pickens is not a huge fan of the majors as they struggle in keeping up with the ever faster treadmill of declining reserves.

[Update - It occured to me later that maybe I ought to look at BP Capital's recent filings to see if, in fact, they owned COP, and er, sure, enough, COP is the only one of the majors they do own. Oops. So I guess Boone does like COP. The other interesting thing that stood out to me from looking at his holdings was just how much Denbury Resources (DNR) BP Capital holds. Wow, they are way overweighting that one. They have some large CO2 resources and they buy old oil fields on the cheap and CO2 flood them to recover more oil.]

My vote for a play they all might find interesting: Canadian energy company Husky Energy (HUSKF or HSE.TO).

Why?

1.) Major natural gas discovery in the South China Sea.
2.) Sizable oil sands holdings in Canada.
3.) Major refiner of asphalt in Western Canada.

(Details here.)

35% of Husky is owned by Hutchison Whampoa, a Hong Kong conglomerate/holding company. There is some speculation that a Chinese company will purchase a Canadian producer to get a significant piece of the oil sands. I have no idea if Hutchison wants to sell, but I would rather not see that happen with Husky. (Frankly, I'd rather not see it happen with any of my holdings there.) Instead, I'd just like to collect my dividends over time and let current management keep running the joint, they've been doing a rather fine job.

Note: None of the above referenced investors has, as far as I know, ever actually suggested Husky as an investment. I'm just... speculating.

The One Minute Peak Oil Investor.

Because the markets are my main hobby, in my off-blog life as a civilian I often wind up talking to people about stocks, investments, and energy. And although the concept of 'peak oil' has now gotten fairly widespread coverage, I still find many people aren't familiar with the concept. I'm not going to try to explain it in this post [I believe the most easily read book that explains the concept well is 'Hubbert's Peak: The Impending World Oil Shortage' by Kenneth Deffeyes].

In terms specifically of investments, many of the people I talk to also seem to be carrying a lot of cash (an outgrowth of their bad experiences in the bear market of 2000-2002). When I bring up the topic of how much energy people have in their portfolios, most don't know, or assume they have an average range (probably a reasonable assumption). Sometimes I get around to suggesting an energy stock or two that people might want to take a look at, and the usual reaction is fairly unenthusiastic. Energy just does not seem very sexy to most folks, I guess, certainly not as sexy as a nice tech play. Some people also say basically, "I just don't have the money, and don't want to sell what I have to make room."

Ok, understood, but given the world that we have today, with questions about long term energy supplies (both in terms of location and quantity), emerging markets and their demands on commodities, inflation, and a potentially declining dollar, I think most people should try to be gaining exposure to energy over time.

So here is my answer to this:

I believe an appealing way to gain additional exposure to energy in an inexpensive, low risk way is to use the Automatic Asset Builder program (essentially a dollar cost averaging program - invest a fixed amount every month to buy more on dips, less on spikes) at T. Rowe Price into their New Era Fund, which can be funded with as little as $50 a month. The New Era fund is focused around natural resources and has a healthy serving of energy. The manager (Charles Ober) amusingly is not a peak oil believer, nonetheless, his fund charter forces him to stay heavily invested in natural resources. The fund has returned about 30% per year over the past 3 years, so it's done a reasonable job of capturing the upside. If you take the time to read the article below, you'll learn also Mr. Ober is a believer in wind energy and is making investments in the sector.

Kiplinger.com: Oil Boom Runs Out of Gas.

T. Rowe Price: New Era Fund

V-SUV Day - Friday, March 30, 2007.

GM testing the waters on bringing high mileage mini-cars to the US.

BusinessWeek: GM VP: Considering Efficient Mini Car.

Quotes:

General Motors Corp. GM's top global product planner said Friday the company is taking a serious look at bringing low-cost mini cars to the U.S. market capable of achieving as high as 50 miles per gallon of gasoline and breaking ground in a virtually nonexistent segment in the world's biggest auto market.

GM Group Vice President John Smith said the auto maker is still in very early stages of investigating the U.S. market's appetite for mini cars. Such vehicles are significantly smaller than sub-compact cars currently sold in the region by several players. GM sells a Chevrolet Aveo sub-compact car in the U.S., but nothing smaller.

Rounding up The Usual Suspects.

Jim Rogers, Boone Pickens, and Matthew Simmons all popping up today and, each in his own way, intentionally or not, stoking the bull market in oil that's re-exerting itself. Although the economy's looking funky, so far there's no sign of it in gasoline demand.

Has oil got it's mojo back? It certainly looks like it. $75 before $55, Boone Pickens says, and that looks reasonable.

Bloomberg: Jim Rogers.

CNBC: Pickens Tells CNBC: Fundamentals Pushing Up Oil, Not Politics

CNBC: Oil Supply Shock.

On the homebuilders in 2007: A-B-S.

Glengarry Glen Ross:

Moss: What's your name?

Blake: *&^% YOU, that's my name!! You know why, Mister? 'Cause you drove a Hyundai to get here tonight, I drove a eighty thousand dollar BMW. That's my name!!

....

Because only one thing counts in this life! Get them to sign on the line which is dotted! You hear me, you &^%$#@ &*$%&$&?

(Blake flips over a blackboard which has two sets of letters on it: ABC, and AIDA.)

Blake: A-B-C. A-always, B-be, C-closing. Always be closing! Always be closing!!

....

Moss: You're such a hero, you're so rich. Why you coming down here and waste your time on a bunch of bums?
(Blake sits and takes off his gold watch)

Blake: You see this watch? You see this watch?

Moss: Yeah.

Blake: That watch cost more than your car. I made $970,000 last year. How much you make? You see, pal, that's who I am. And you're nothing. Nice guy? I don't give a ^&$@.

....

I can go out there tonight with the materials you got, make myself fifteen thousand dollars! Tonight! In two hours! Can you? Can you? Go and do likewise! A-I-D-A!! Get mad! You sons of bitches! Get mad!! You know what it takes to sell real estate?
(He pulls something out of his briefcase)

Blake: It takes brass balls to sell real estate.

-----------------------------------

And on the homebuilders in 2007, I say:

A-B-S!

A-always, B-be, S-shorting.

Always be shorting!

Always be shorting!!

I'm being slightly tongue in cheek here, but I imagine that there were scenes in the real estate/mortgage business over the past few years that had some interesting parallels with the above scene.

What a mess. And they really jammed 'em in at the end, didn't they?

Still probably some meat on the bone on the short side, I think, and Centex is a particular 'favorite' of mine; Florida, California, up and down the coasts, what more exposure could you ask for?

Scary reading:

The Economist: Cracks in the Facade.

And the always great blog that covers the housing mess: Calculated Risk.