This
Week in Barrons – 8-18-2013
Fracking, Natural Gas – Somebody
Err’d Big Time…
This week – without a fanfare and
without the NY Times or the WSJ carrying the news blurb – the US Government
came out with a landmark study. The US
Government found that in shale oil drilling areas, fracking fluid does NOT
disrupt the water table. This is a major
defeat to the EPA that has fought tooth-n-nail to stop fracking operations
because they claimed that it contaminated the water supply with natural
gas. With the Obama administration being so completely on board with the environmental
hard-liners this was an important finding. Why? There is an abundance of pressure on the Obama
administration to slow down all of the fracking operations going on around the
country. The incredible amounts of natural
gas that we’ve discovered, and are now exporting – means that (for the first
time) the U.S. is providing energy to others (around the globe) for profit.
America was built on cheap energy. The ONLY reason we built our vast rolling urban
developments far away from cities was because land and gasoline were cheap
– and people didn't mind driving. That's
what put millions of carpenters and craftsmen to work at the end of WWII – on
housing, malls, and highways. Cheap
energy allowed that to happen.
I think the ONLY way we can truly
save the American economy is if they cut all the red tape, do away with the
over zealous environmental regulations, and allow us to produce enough oil and
gas that we get back to $1.50 a gallon gasoline. If they did that, it is
my guess that the building/manufacturing boom would be so big it would surprise
even me. So, is this the start of it? Honestly – probably not.
I personally would love to see us go
‘full speed ahead’ with drilling, refining and gas capture. But there are just so many regulations to get
through now a days. For example – here’s
a true story that someone sent to me:
-
Last
month a Missouri man who makes a living as a magician had quite the story to
tell. Because he has a pet rabbit he
"pulls from the hat", the USDA contacted him about obtaining a USDA
rabbit license because he uses the rabbit in the business.
-
In his
correspondence he wrote: “I just
received an 8 page letter from the USDA, telling me that by July 29, I need to
have in place a written disaster plan, detailing all the steps I would take to
help get my rabbit through a disaster, such as a tornado, fire, flood, etc.
They not only want to know how I will protect my rabbit during a disaster, but
also what I will do after the disaster, to make sure my rabbit gets cared for
properly. I am not kidding-before the end of July I need to have this
written rabbit disaster plan in place, or I am breaking the law.
-
This
ended up being a 41-page document outlining the entire contingency plan that he
would follow if a disaster struck. This is the type of garbage our
Government considers "normal" activity, and is making it more
difficult for this gentleman to earn a
living.
My fear is that the ‘insane’ is the
new normal. Everywhere I look the push
is for more rules, more regulations, and more Government intrusions. I'm
just hopeful that their latest look into fracking and finding it not nearly as
dangerous as was originally thought – could provide a light at the end of a
tunnel.
On a related note – I am a firm
believer in some sort of renewable energy.
I love solar energy but the storage of that energy is a real issue. Batteries don't work that well, and other storage
mechanisms also have issues. Therefore,
solar really isn’t a viable option until they solve the storage issue. But recently some scientists in Colorado have
come up with a solution that solves the problem differently. Instead of batteries and panels, they
considered a different ‘attack’. They focus
mirrors onto a tall cylinder filled with water. This causes the water inside the cylinder to
become extremely hot. A catalyst metal
is then introduced that causes the hydrogen (in water) to split from the oxygen.
They then bottle the hydrogen and store
it in a ‘tank.’ There are no nasty
by-products, and it’s completely ‘clean’ energy. They are using solar power to split hydrogen
from water – and then using the hydrogen to power our electricity generation
facilities.
My point to all of this is that we
live in a country full of natural resources and a lot of smart people. As much as we talk ‘doom and gloom’ of our
economic system, the fact is that even if it fails completely (which is likely),
something WILL rise from the ashes. Cheap, abundant energy is one element that
puts a lot of people back to work in a hurry. A solution on how to harness the sun’s power –
sets us up for generations to come.
Let’s keep our fingers crossed.
The Market:
This week we entered the land of ‘chop’.
With some form of S&P support at the
1650 area, we have worked our way down there and bounced around. And when I say bounced around, an average day
would have the market opening green, dipping red, going green, falling 140 points,
and then reversing itself to close up 30. That's one heck of a round trip.
So why the chop? The taper talk is paramount, but there's also
those 6 Hindenburg Omens that the market has flashed. Then there are the ‘less than stellar’
economic reports that we keep getting. Put this all together, and there are a lot of
serious headwinds to contend with.
But everyday I have to listen to
CNBC tell how great companies are doing, how great the consumer is, and how
manufacturing is doing so well. Yet this
week:
- Both
Macy’s and Wal-Mart missed their earnings and guided lower saying the consumer
is tight.
-
Cree (the
largest maker of LED lighting) missed their earnings number, and said that
sales are really slumping.
-
And mortgage
applications have fallen 13 out of 15 weeks.
This week plunging 4.75%.
How can the Fed taper off the gas
pedal when it's obvious that after 5 years of all this money printing, stimulus
and bail outs – we’re just barely above stall speed. The market has every right to be a bit edgy. Some will say that we are just consolidating
and ‘digesting’ the fact that tapering is coming. Really?
I'm NOT in the camp that says the Fed can yank $15 Billion a month from
their buying without causing harm. Logically, if the market is up at these levels
because of $85 Billion a month in Fed purchasing, doesn't it make sense it will
fall to the level that equates with $70 Billion if they taper?
In any event, until the market
either breaks out above 1709 or breaks below 1650 we are sitting tight. I think the best play is fast small trades,
not "jumping in" with both feet. On another note, gold and silver
have both done very well in the past few days and (of course) TV isn't talking
about that. But let's face it, gold has
outperformed the market since June, and there are a lot of reasons for that. I’ve been a ‘gold bug’ for 12 years now and I
feel that there's more to come. The reasons we pounded the table for gold
in 2001 have not changed. I have stated
that gold has a date with $2,400 – and silver a date with $70, and I'm standing
on that.
In stock land, I'm a bit hesitant on
doing much until S&P 1650 and 1709 either hold up or break down. Over 1709 it would look like we should buy
more, under 1650 we could be in for more pain.
On the precious metals front, I think we could see one small shake down,
but all in all, the overall direction is up and buying the metals makes sense.
Likewise the miners who have been beaten to a pulp have really done well
recently. Back at the end of June I mentioned that picking up a basket of the
highest ranked miners made a lot of sense – and congrats to whoever made that
trade.
Tips:
This week I was stopped out flat on
CAT and CCK. But look at the movement in
the metals – silver and gold. There are
rumors that there were ‘failed deliveries’ of some of the physical metals this
week, and deliveries that used to come in 3 weeks are now stretching over 8 and
9 weeks. Remember 6 weeks ago when
silver was selling for $18+? It’s now
over $23 an ounce. Congrats to the
buyers out there! Also – the miners are
beginning to get a lot of interest. This
sector (in particular) has been beaten beyond belief – so it won’t take much to
have some tremendous moves in a hurry.
You may want to buy into the junior miner ETF – just for good measure!
Also – I’m seeing SSYS (a 3D
printing company) offering a fairly good opportunity to make 5% in a
month. The stock is selling for $99 /
share, and you can sell the ‘covered call’ against it – Sept 21 - $100’s for
around $5.10. Now SSYS has been on a
tear as of late – so you have a high probability of getting ‘stopped out’ – but
you’re still making over 5% in one month, and you’re in a very fast-growing
space.
My
current short-term holds are:
-
FB – in at 25.61 (currently 37) - stop at 36.00,
-
FCX – in at 28.47 (currently 31.52) – stop at
30.50,
-
SIL – in at 24.51 (currently 15.82) – no stop
-
GLD (ETF for Gold) – in at 158.28, (currently
132.88) – no stop ($1,371.70 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 22.44)
– no stop ($23.31 per physical ounce).
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there! a
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