TFN eNews 10/27/2009: Commodities shocker — 3 ways to gain as this energy resource collapses!
Published via e-mail broadcast on October 27, 2009
In today’s TFN eNews:
* It didn’t happen in Russia
* Brain drain and money drain
* The imminent popping of the natural gas bubble
Dear TFN eNews reader,
A few years ago, Vladimir Putin began involving himself directly with the governance of “private” or at least publicly traded companies. Almost instantly, investors sold off. Russian stocks plummeted. The Moscow Times index collapsed.
Years later, pundits still raise a warning index finger about Russian equities. A country that plays fast and loose with property rights represents a high risk for investors, they say.
Where are they when you need them?
Last week, an unelected government official — an appointed advisor even not even confirmed by elected representatives — arbitrarily ordered to cut the pay of executives in private businesses by 50 percent or 90 percent.
It didn’t happen in Russia. But in the United States.
Instead of outrage at the brash usurpation of property rights and the violation of procedure, people nodded and clapped. The same people who shrug at actors getting paid eight-figure fees for the latest movie flop. Or who spend their weekends wagging styrofoam fingers at multi-millionaire high school drop-outs chasing a ball.
They found nothing wrong with government determining compensation levels in shareholder-owned companies.
Neither, apparently, did investors. Or lawyers. Or the boards and shareholder assemblies of those companies — negligent as they have been not to cut those solid-platinum compensation packages to incompetent empty suits themselves.
Envy and resentment — skillfully manipulated and directed by media and politicians — obscured that what we just witnessed was blatant, direct government interference in private property rights.
The U.S. equities markets must be either incredibly solid… or incredibly apathetic.
*** Apart from the erosion of the very foundations of American business, the lack of reaction may be a good sign. At least for stock investors with an eye on the short to medium term.
Despite the market’s ups and downs in the past days, I’m now cautiously optimistic.
I was anticipating a far more dramatic shake-out for October. The month isn’t over yet. Even without an election, November still may have a few nasty surprises up its tattered sleeve. But overall, I anticipate the last two months of the year to present us with a few extraordinary profit-taking opportunities.
Quite a number of our open positions at our premium service Hot Stock Confidential are currently raiding at solid discounts over our recorded entry price.
Remember Hecla Mining and other stocks that went through similar moves earlier this year: Short-term retreats like the one we’re experiencing represent an additional layer of opportunity. We won’t be able to reflect this opportunity in our official numbers… but those among you who bought some of our recommendations at prices far below our recorded entry price made out like bandits this year!
*** The elevation of envy and resentment into pillars of policy doesn’t bode well for those of us who will or intend to leave our offspring a bundle when we shuffle off our mortal coil.
Congress is expected to revise the estate or inheritance tax before it expires at the end of this year. That’s within the next 8 weeks!
Estate taxes affect the transfer of assets from a deceased person to his or her heirs. Without congressional action, they will disappear for one year at the end of 2009.
Current policy exempts the first $3.5 million in an individual’s estate, with a maximum tax of 45% on property after that.
After 2010, the tax would revert to Clinton-era levels, exempting just $1 million in property, with a maximum rate of 55% above that.
(Of course, today’s million is the inflation-adjusted equivalent of $770,000 in Clinton-era dollars. Half of which should be eaten up by the valuation of a suburban family home…)
This tax is one of the last remnants of dark-age Feudalism, when the King or liege lord considered the property of his vassals a life-time loan… recallable at whim. The message of the estate tax is clear: Private property is on loan to the individual by the government. Even wealth that has been taxed during its creation — typically at high rates — will be claimed by the government as its own.
Again, given the populist exploitation of mass envy and resentment, I see no resistance being offered.
*** But the attack on property rights and the softening of the demarcation of what is yours and what is the government’s has unintended consequences.
Already, states who have implemented punitive taxes on ambition and high earnings are providing a small glimpse of what the United States will face on a large scale in the coming years:
From 2000 to 2008, for example, ore than 1.5 million New York state residents have left for other, cheaper parts of the country.
This was the biggest out-of-state migration in the country.
The vast majority were former residents of New York City — one out of seven city taxpayers.
Those fleeing New York are being replaced by lower-income newcomers, who of course pay less in taxes. Manhattan suffered the biggest loss in terms of taxable income.
During 2006-2007, this “migration flow” out of New York to other states added to a loss of $4.3 billion in tax revenues.
With opportunity waning nation-wide and increased taxation and inflation threatening the rewards of hard work and ambition, I wouldn’t be surprised to see similar migration patterns evolve on a national scale before this decade is over.
*** Cash-rich China meanwhile is taking advantage of low prices to snap up energy resources to ensure future growth.
In the first 10 months of 2010, China has purchased an estimated $15 billion in oil and gas supplies — twice last year’s figure.
Russia just agreed to sell China about 2.5 trillion cubic feet of natural gas a year — almost as much as Russia sells to all of Europe.
A few weeks ago, I reminded you that Russia’s natural gas monopoly Gazprom had announced plans to carve itself a 10% share of the U.S. natural gas market — by 2014.
The company aims to control a quarter of the world liquid natural gas (LNG) market by 2020.
They’re not messing around!
The company plans to use liquefied natural gas from its Sakhalin-2 project to supply U.S. customers. Down the road, Gazprom could send LNG from its Arctic Shtokman field to North America.
Or the other way round!
With China intending to buy as much gas as the Europeans, even Russian supplies — contracted out in part to unstable regimes in Central Asia — might be squeezed once the pipelines are opened.
Given the current levels of natural gas prices, Gazprom’s U.S. strategy looks particularly timely.
Because U.S. natural gas producers are already struggling to stay in business!
With that natural gas price sitting around $5.15 per 1,000 cubic feet, for many wells, this is at or even below break-even:
In many areas, it currently costs more to pump a cubic foot of natural gas from the ground than you can expect to make on it if you sell it!
And it’s not getting any better: Current supplies are so high, storage space is getting scarce:
According to the Energy Information Administration (EIA), there was 3.899 trillion cubic feet (tcf) of working gas storage capacity in the United States in 2000.
Gazprom’s entering the U.S. natural gas market will add an additional level of competitions into a market starved for buyers. Because the best way to establish a 10% market share for a company with the unlimited resources and loose accounting of a superpower behind it is competing on price.
This way, Gazprom could not only absorb a 10% share of U.S. gas consumption. What’s more important, it could secure a stronghold in U.S. gas production and supplies… by buying up distressed drillers and processors.
Our TFN strategic options specialists thinks this translates into short-term pressure on global gas prices. He has found three close-to-home ways for you to secure yourself against this scenario… and maybe make a mind when it comes true.
I highly recommend you read his latest report! http://www.todaysfinancialnews.com/TST/GAS/WTSTKA04.html
*** SPECIAL OFFER! Northeastern University’s Master of Science in Finance: fully online, 16 months, AACSB accredited. Visit: http://onlinemsf.neu.edu/finance-online
*** Quote of the Day:
“Liberal politicians have been spoiled with mainstream media favoritism for so long that they believe anything other than sycophancy is mistreatment.”
– David Limbaugh, Newsmax.com
Recommended Reading:
Today’s Top 3 Financial News Stories:
Bloomberg.com – Consumer Confidence in U.S. Unexpectedly Decreases “Confidence among U.S. consumers unexpectedly fell in October for a second month as Americans fretted about a lack of jobs.”
MoneyNews.com — India: Inflation Is On the Way “India’s central bank kept key interest rates unchanged Tuesday, but warned that inflation will rise faster than previously expected as the economy recovers and drought pushes up food prices.”
WSJ.com — Crude Gains Ground as Dollar Falters “Light, sweet crude for December delivery recently traded 26 cents, or 0.3%, lower at $78.42 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 30 cents, or 0.4%, lower at $76.96 a barrel.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: Backward logic: Demand sinks, production rises
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