Wednesday, August 26, 2009

US Stocks Slightly Lower On Weak Industrials

U.S. stocks traded slightly lower Wednesday as several sectors that contributed to last week's big rally pared back, though the declines were muted by a report of rising new home sales.

The Dow Jones Industrial Average was recently off about 14 points at 9525, on the heels of six straight days of gains. Within the index, decliners were led by industrials, such as 3M and General Electric, and financials, including JPMorgan Chase. Both sectors had been at the forefront of the Dow's recent winning streak.

The Nasdaq Composite Index was off 0.4%. The S&P was down 0.3%, hurt by a 1% decline in its industrial sector. Its materials sector was off 0.7%. (more)

The Second Coming of Natural Gas

By Chris Mayer

Natural gas is in the dumps. And that is a good reason to own some. Cycles self-correct, and for natural gas, the self-correction process is already in the works.

Low natural gas prices, for example, are bringing in fresh demand from utilities. They are switching from coal, which is more expensive and comes with the added threat of new and as-yet- undefined carbon regulations. Natural gas production gives off about half of the carbon dioxide as coal. You can also build natural gas plants more quickly than coal plants. Natural gas is also cheaper to move. Therefore, power companies are upping the investment in natural gas. Already, coal-to-gas swapping has created incremental demand of 3 billion cubic feet per day.

The consensus is we'll have cheap gas for years. The firm Wood Mackenzie says natural gas prices won't recover until 2015. That's a pretty good crystal ball they got over there at Wood Mackenzie.

I think that prediction will be wrong.

Joe Rosenberg, the savvy chief investment officer at Loews Corp., a stock I have recommended to the subscribers of Capital & Crisis, has made a number of timely calls, including jumping on fertilizers in 2002. Today, two of his favorite investments are natural gas and gold.

He calls natural gas "one of the cheapest commodities in the world today and -- I would daresay -- one that over the next 10 years will be a very, very attractive commodity." I agree with Rosenberg. Cheap commodities have a way of becoming dear after a time.

"The best way to own natural gas,” says Rosenberg, “is to have very long-term reserves of natural gas in the ground -- and not worry about it." Loews has 20-year reserves of natural gas through its subsidiary, HighMount.

Another way to play the rise in natural gas production is to own the stocks that do the drilling and make the equipment. I like Tesco (TESO:nasdaq), a solid play and a good shot at a triple from here. It basically makes the motors that power those drilling rigs working in the shale gas plays.

Robert Rodriguez, the great manager of First Pacific Advisors' Capital Fund, shares Rosenberg’s bullish outlook for the energy sector. Rodriguez has been buying energy stocks all year. In fact, nearly 67% of his purchases in the last quarter were in energy. He added new positions and bolstered older ones. As he writes:

"In each case, we deployed capital in companies that have strong balance sheets with managements that have expressed a policy of living within their current cash flows. The E&P companies were acquired at valuation levels that are 20-40% less than the value of proved reserves, on a per share basis, than in 2002. We estimate that both the new and existing energy service companies were acquired at valuations that were approximately 30% of replacement cost." (Rodriguez's fund owns Ensco [ESV:nyse], for example, which is a stock I recommended several months ago in Capital & Crisis).

Bargain valuations are not the only appeal of the energy sector, according to Rodriguez. He also sees energy as a hedge against inflation. "We view the energy sector as both a store of value and a hedge against a future inflation,” Rodriguez explains. “It is one of the few sectors where we believe the underlying fundamentals will continue to improve despite the worldwide economic contraction. With worldwide oil depletion rates of 9% annually for those fields past peak and U.S. natural gas first-year production decline rates of 30- 50%, these trends should be supportive of energy prices longer term. Again, within three-five years, we believe oil prices will be back above $100 or even higher than $150 per barrel."

I agree with Rodriguez. And while the price of oil has gone up a lot, the price of natural gas is scratching seven-year lows. So natural gas may be even better than oil, since it has not moved much, yet many of the same oil dynamics apply. Of the E&P companies Rodriguez added recently, most are heavy on natural gas. My favorite natural gas producer is Contango Oil & Gas (MCF:amex), which is still very cheap. It's also a debt-free and low-cost producer.

One of these days, natural gas will recover from its depressed prices. So why not avoid the rush. Buy now!

Wallstreet Journal Europe August 26 2009

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Gold ‘Deja Vu’ Shows Advance Above $1,000: Technical Analysis

Gold will rise to more than $1,000 an ounce next month based on moving-average “deja vu” patterns since the start of 2005, according to Barclays Capital.

This year’s trading was similar to previous patterns that indicated gold has a tendency to “break higher” in September and the 200-week moving average showed the uptrend on the precious metal remained intact, Jordan Kotick and other analysts at Barclays wrote in a report on Aug. 21.

Bullion jumped 7.8 percent in September 2005 and 10 percent in September 2007, laying the ground for the metal to rise to new highs in the following months. Gold traded at $946.20 an ounce at 12:40 p.m. local time in Singapore, up 7.3 percent this year. The metal was “mired” in a contracting range between $967 and $928, the analysts said. (more)

Case Shiller Improves Monthly, Falls Yearly

Data through June 2009 by the Case-Shiller Home Price Indices shows that the U.S. National Home Price Index improved in the second quarter of 2009, while falling year over year.

How much voluntary foreclosure moratoriums impacted pricing is an unknown in terms of degree, but they likely had a significant effect.

The chart below shows the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. (more)

Berkowitz: Buy Pharma on Obama Dip

Fairholme Fund manager Bruce Berkowitz says that investor fears over what the Obama administration’s policies could do to pharmaceutical and healthcare companies drove down their share prices, making them even more attractive investments.

Berkowitz, whose fund holds several drug and healthcare companies, told Forbes he became interested in the sector not because of the unbelievable money that the companies are making, but “because of the fear that the new administration was going to destroy our drug companies, destroy our healthcare companies, which sent the prices of these securities over the cliff.”

“The (share) price you paid versus the earnings that the companies were making were quite reasonable and one could get a double-digit yield,” Berkowitz says. (more)

Bove: Bank Stocks Ready to Slide

After their recent huge run-up banks stocks now are overvalued, says superstar bank analyst Dick Bove of Rochdale Securities.

Until the end of the year bank shares “are probably a little bit ahead of themselves,” Bove told’s Dan Mangru in an interview.

“Bank of New York is up 200 percent, SunTrust and State Street are up 300 percent, Citigroup is up 400 percent, Bank of America 500 percent,” he points out.

“Yet most of these companies, other than State Street and Bank of New York, are going to lose money in the third quarter. And probably they’re going to lose money in the fourth quarter.” (more)

Robert Kiyosaki Why the Rich Get Richer

"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"

My reply is, "I don't think so. I would prepare for the worst."

Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.

The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:

1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.

Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous. (more)

Candlestick Formations For Google, Gold, and Oil

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Tsunami of Home Foreclosures to Hit US: Economist

A tsunami of home foreclosures is set to hit the US as banks are unable to keep bailing out tenants that can’t afford their rent and struggling home owners show their anger at the financial crisis by giving up on their mortgage, David Karsbøl, chief economist at Saxo Bank, told CNBC.

“I believe we are about to see a tsunami of foreclosures in the US,” Karsbøl said.

“A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” he said. “That’s why they have been reluctant to do so,” he added. (more)