Tuesday, February 26, 2008

More nat gas please. (And ag.)

National Post: Forget global warming: Welcome to the new Ice Age.


Last month, Oleg Sorokhtin, a fellow of the Russian Academy of Natural Sciences, shrugged off manmade climate change as "a drop in the bucket." Showing that solar activity has entered an inactive phase, Prof. Sorokhtin advised people to "stock up on fur coats."

He is not alone. Kenneth Tapping of our own National Research Council, who oversees a giant radio telescope focused on the sun, is convinced we are in for a long period of severely cold weather if sunspot activity does not pick up soon.

The last time the sun was this inactive, Earth suffered the Little Ice Age that lasted about five centuries and ended in 1850. Crops failed through killer frosts and drought. Famine, plague and war were widespread. Harbours froze, so did rivers, and trade ceased.

It's way too early to claim the same is about to happen again, but then it's way too early for the hysteria of the global warmers, too.

Thursday, February 21, 2008

Boone Pickens on CNBC.

Boone Pickens was interviewed this morning on CNBC and he spoke for a while about the long term challenges for energy in America, how none of the presidential candidates had any kind of reasonable plan for really dealing with this, and the fact that we are sending a half a trillion dollars a year overseas to pay for oil to people that we don't know, and who may not be our friends. His solutions include wind and solar, natural gas as a transportation fuel, clean coal, and ethanol (which appears to be a notable change of heart).

He's also currently short both oil and natural gas as he expects them to fall over the next couple of months. Oil he said might drop $10-15 into the second quarter, but he predicts it will be back above $100 in the second half. Natural gas he believes is unusually high due to the weather and will back off.

CNBC: Pickens Expects Oil, Natural Gas Prices to Fall.

Tuesday, February 19, 2008

Go Aggies!!

My slightly tongue in cheek prescription for 2008:

Buy ag and natural gas and take the rest of the year off.

Bloomberg: Food Is a Great Asset -- Minus the Fund Manager: Andy Mukherjee.


Investors can't afford to ignore food. As a hedge against a possible U.S. recession, and direct exposure to rising urbanization and wealth in Asia, it's an asset class that's tailor-made for the present times.

As Jim Rogers of New York-based investment firm Rogers Holdings puts it: ``If you're in agriculture, you don't know that there is a recession, you don't care.''


Global food inventories are running thin.

The amount of wheat, rice, corn, barley and other grains stored at warehouses around the world is enough to meet less than 60 days of global demand, a 35-year low, according to Merrill's analysis.

High Returns

Shortages are also emerging in the supplies of soybeans, palm oil and other oilseeds.

Slaughter rates are rising as cattle-feed prices soar.

All this should mean tidy profits for those investing in agricultural-commodity futures, provided they have the appetite for the higher risk of price volatility that's often seen in commodities where the stockpiles are small.

Gary Gorton, a University of Pennsylvania finance professor, recently demonstrated that inventories play a significant role in determining returns on commodity futures.

Gorton and his colleagues studied the performance of futures contracts on 31 commodities from 1969 through 2006, grouping them in portfolios of lower-than-normal and higher- than-usual inventories; the former returned more than 13 percent annually, while the gains from the latter were less than 5 percent.

`Chindia' Effect

Eventually, food supplies will rise to match the present elevated levels of demand. But it may take time because of the ``Chindia'' effect.

Millions of Chinese and Indian households are becoming a little more prosperous every year, and demand for protein is very income-sensitive.

That's bound to put further pressure on stretched food supplies. Investors have a chance to profit from agricultural commodities because their prices are still ``relatively low,'' Marc Faber, the Hong Kong-based investor and publisher of the Gloom, Boom & Doom report, said earlier this month.

Sunday, February 10, 2008

Boone Pickens: The answer, my friend, is blowin' in the wind.

NewsOk.com: Boone Pickens shares his views on energy, politics, the Olympics, OSU's new president.


Before 2010, the price for a thousand cubic feet of natural gas will be $10, Boone Pickens predicts. And oil prices will reach $100 a barrel again before the end of this year.

For those and other reasons, Pickens is betting on alternative energy for the future.

"We are importing 62 percent of our oil now, and the two largest producers are Saudi Arabia and Russia,” Pickens said. "And the two largest consumers of oil are ourselves and China.

"When you look at that, you say, ‘We have kind of got ourselves in a bit of a spot that is going to get even more uncomfortable.'”

Pickens said the U.S. will spend trillions of dollars to get the imported oil, and that the nation can't be sure where that money is headed.

"Now, that is a real transfer of wealth. We have got to figure out something different than what we have,” Pickens said.

"Different,” he told The Oklahoman on Tuesday, means using natural gas to power vehicles and wind and solar sources to generate electricity.


"I promise you, natural gas will be a real transportation fuel. If I am successful about what I am doing, it will make a difference in Oklahoma because natural gas will sell at a higher price than it is now for heating homes and for electrical generation,” he said.

He also is busy building what he calls the nation's largest wind farm, capable of generating 4,000 megawatts of power once it comes online. He predicts similar projects could be built between the Texas Panhandle and the U.S.-Canadian border, providing jobs, income and a secure environment for a significant piece of the nation's energy infrastructure.

Power transmission corridors are needed to get the power from the farms to East and West Coast communities, and he said private industry will provide the infrastructure if the government gives it suitable incentives.

"I think that it is very realistic that it can be done,” Pickens said.

He noted that in his Mesa Power project alone he has been approached by 20 potential partners, each of whom has provided studies on the wind farm project at his own expense.

"All of them have a plan for how this can be accomplished,” Pickens said.

"We have not picked any banker and we have not picked any partner,” he quickly added. "It is kind of nice ... I have decided I can get pretty far down the track” before having to make those choices.

Pickens said his company will start buying turbines — from 1,700 to 2,000 — next month at a cost of $200 million to $300 million.

In all, it will cost the company $11 billion to build the field and get its power from the Texas panhandle more than 300 miles south and east into the Texas area's power distribution system, he said.

A video interview is available here. He thinks it's possible we'll see a softer oil price at the beginning of the year, as low as $85 a barrel, but then it'll rise back up to $100.

Tuesday, February 05, 2008

The Recession Will Be Televised.

This article explains a little more on ECRI's thinking on the window of opportunity of averting recession.

MSN: Where's a safe harbor now?


There's an odd paradox at work, you see. Lakshman Achuthan, the head honcho of the Economic Cycle Research Institute, which has successfully called the past several U.S. recessions, notes that all the recent pessimism about the economy may actually have had a beneficial effect. He says that the biggest negative impetus in any recession comes from the manufacturing sector, which is in turn driven mostly by the inventory cycle.

Unaware of an approaching recession, he observes, businesses typically produce goods in anticipation of rising demand. When, to their surprise, demand for their products starts falling, inventories mount, forcing production and job cutbacks, thus reducing income and spending power. The spending cuts force further production cutbacks to work off the excess inventory, and a vicious downward spiral ensues.

At present, Achuthan says, we have the opposite scenario. Prolonged pessimism about the economy and a surprise acceleration in growth through last summer has resulted in a sharp drop in business inventories, taking the inventory-to-sales ratio to a record low. Thus there is little inventory left to whittle down in response to slackening demand, blunting much of the downward impulse for recession.

This is where Congress and the president come in. They can still throw American retailers, manufacturers and service providers a lifeline if they pass a $150 billion package of tax rebates quickly and cut checks in the next two months. If a timely stimulus results in a quick burst of consumer spending, manufacturers will boost production instead of reducing inventories, thus preventing economic Armageddon. Time is of the essence: The Economic Cycle Research Institute suggests even a three-month delay in getting rebate checks out could spell the difference between a bone-crushing recession costing thousands of jobs and a nice, soft landing.

Monday, February 04, 2008

Top Things We Don't Want to Hear - #2.

ECRI indicating the risk of recession is very high, and the window of opportunity to avoid it is about to "slam shut". ECRI has a pretty good track record of calling these things.

Reuters: Gauge of economy falls, recession looms: ECRI.


A weekly gauge of future U.S. economic growth fell hard and its annualized growth rate plunged to a six-year low, a research group said on Friday, indicating the risk of recession is very high.


"WLI growth has dropped back to the six-year low seen in early January," Achuthan said.

"While the economy and employment did continue to grow through the end of 2007, the window of opportunity to avert a U.S. recession is about to slam shut."

Sunday, February 03, 2008

Weeden Oil Analyst Charles Maxwell on Moneytalk.

Last night, Charles Maxwell, senior energy analyst at Weeden and Co., was again a guest on Bob Brinker's Moneytalk radio show.

[You can listen to this show for the next 6 days at KGO-AM 810 radio here.]

There wasn't a lot of new stuff in the discussion, but a caller asked him to project oil prices going forward and his new projections are incrementally higher than they were in the past. (Some prior projections from 2005 are here.)

Mr. Maxwell projected that oil prices could fall for a little while, perhaps getting as low as the $70's area, but then would continue in their relentless uptrend due to the peaking of world oil production, which he believes will happen around 2013-2015.

His price projections:

2008 - average of $80 a barrel
2009 - high $80 to $90 range
2015 - $180
2020 - $300

Again, he believes the peak in oil production will fall around the 2013 - 2015 time frame, with perhaps a 2 year plateau, and then we begin a downward trend in oil production.

He spoke briefly about how we will cope with this issue, and he suggested we find our way through via a combination of efficiency/conservation and alternative forms of energy production (natural gas, clean coal, uranium, etc), but he also felt that energy in the future will be "much, much more expensive".

Bob Brinker has increasingly caught up with the issue of peak oil in the past few years. A couple of weeks ago he had on a former professor from Berkeley, Bill Wattenburg, who believes we must urgently begin a program of building nuclear power plants to be able to shift natural gas from power generation to transportation, as well as to avoid some of the serious downsides to burning coal. (You can read more on this here.)