The Rude Awakening
Wall Street, New York
Thursday, December 7, 2006 - Natural gas - poised to light the energy sector on fire?
- A little respite for the doldrums-dwelling dollar…very little indeed,
- A view of the Eiffel Tower, not jumping turnstiles in Paris and much more…
Eric Fry, reporting from the land of depreciating dollars… The U.S. dollar managed a modest bounce yesterday…or was that a splat? Whatever it was, it was not particularly impressive. But it was enough to trigger a $12.00 selloff in gold…or was that a splat? During yesterday's New York trading session, the greenback gained a nearly invisible 0.2%. That's not much, especially after plummeting 4% in less than three weeks. The dollar's faithful admirers must have been hoping for a larger rebound. By the same token, gold's admirers must have been hoping that a tiny uptick in the dollar would not erase $12.00 from the gold price. Perhaps the steep selloff in gold anticipates a much larger rebound to come for the U.S. dollar. We wouldn't rule out the possibility. But as we have made very clear over the past few years, and again this week, we expect the dollar's value to continue its gradual erosion. We expect it, but we're not exactly rooting for it. Only a fool would cheer his impoverishment. Our bank account contains dollars; our brokerage account contains dollars…and every two weeks we receive a paycheck denominated in dollars. So please understand, dear reader, we are not cheering our impoverishment, we're trying to avoid it. That's why we highlight the dollar's fundamental shortcomings, and why we examine the virtues of diversifying into non-dollar assets like gold, foreign currencies, foreign stocks, commodities, resource stocks etc. We diversify with the hope that the dollars we already hold will not lose their value entirely, but with the realization that history has not been kind to paper money. What is a dollar after all? We have been addressing this question all week. Is it the monetary symbol of the world's last remaining super-power? Or is it the I.O.U. of the world's leading super-debtor? Nobody borrows more money in more ways than we do. Nobody racks up $800 billion dollar current account deficits, then smiles and winks and says, "I'm good for it…Just run a tab, please." There must be a limit to America's prodigious borrowing and spending, but we never seem to find it. There must be a limit, we tell ourselves, but we never seem to bump into it. Or are we? Perhaps we are reaching the limit already, and that limit is expressing itself in the withering exchange rate of the U.S. dollar. We cannot know if the U.S. dollar will continue falling, but it sure looks like it should. And as it falls, the world's dollar-holders might ask themselves ever-more-frequently and ever-more urgently, "What is a dollar anyway? And why should I keep holding these things instead of gold or euros or barrels of oil or stands of timber?" We can offer no ready answer to his question, except to say, "You shouldn't." There are reasons to hold dollars, maybe even a couple good reasons. But there are no GREAT reasons whatsoever. The foreign exchange market has sent a very clear message: Unload your dollars. Use the time to buy something else…ANYTHING else. In the column below, Chris Mayer explains why natural gas and natural gas stocks, might offer a very timely opportunity to exchange your dollar bills for something of real value. --- Wall Street Place Their Bets --- So What Are The Wall Street Suits Doing With Their Dollars? Recently A CEO Bets 22% of His Modest Salary That His Company's Stock Will Rise At Least 74% in the Next 11 Months His CFO agreed, and invested 31% of her salary…a scant 2 hours later. Fact is-this $300 million company has just seen the largest insider-buying surge in its 48-year history. If the CEO and the CFO, among other top execs, have this kind of confidence-shouldn't you get a cut of the coming profits too? Click here to learn more. ------------------------------------ A Reasonable Speculation
By Chris Mayer Anytime the price of anything drops two-thirds in a matter of months, it is worth checking out the story. Financial train wrecks like these can make interesting reading over boiled eggs and coffee - as long as your dollars weren't riding on the train. For investors, though, it's more than something to digest over breakfast. It's the sign of possible new investment ideas on sale. And so we take a look at the price of natural gas. As the "Natural Gas - Where to Next?" chart shows, it's taken a beating. And natural gas companies sit well off their highs, but more on that later: 
The chart title poses a question, which I will take a guess at answering. First, you should know that natural gas prices are highly seasonal and dependent on the weather. We had a balmy winter last year. That meant a lot of leftovers in natural gas storage in the spring. It's like buying a lot of beer and wine for a dinner party, only to have the usual heavy drinkers not show up. On top of that, hurricane season was practically a nonevent. Someone forgot to tell the hurricanes it was time to do their thing. (More on that too later in this letter.) These effects seem temporary. A cold snap could burn through that excess supply in a hurry. Besides, there are structural reasons for natural gas to stay at pretty high levels ($5-plus) compared with what it was in the late 1990s (under $3), at least for the next few years. "Structural reasons" is high-minded Wall Street chatter for "things that look pretty obvious long term." For instance, natural gas powers 95% of the electricity capacity built in the U.S. from 1998-2005. Awash in cheap gas for most of the 1980s and 1990s, we did a lot of switching from coal to gas. Not only was gas cheaper, it was much easier on the environment. Further grist for the mill: Each fall, the North American Electricity Reliability Council (NERC) puts out its forecast on the reliability of the America's power grid. This year's report showed demand growing 3 times as fast as capacity additions. Capacity margin, a measure of the ability of a system to meet with unexpected extreme weather and other contingencies, will fall below the minimum target of 15% in most of the U.S. There is little slack in the system, and gas figures prominently in America's power supply. Natural gas trails only coal as the fastest-growing energy source in America (see nearby chart). The EIA Annual Energy Outlook 2006 forecasts demand to rise 22% from now until 2030. This includes a 62% increase in gas used for electric power generation. As is, gas meets 23% of the nation's energy needs. So the short story here is that demand for natural gas looks pretty steady: 
What about supply? As the Red Queen (of Lewis Carroll's Through the Looking Glass) says, "It takes all the running you can do, to keep in the same place." Once natural gas is gone, it is gone for good and new supply must replace it. Most of the natural gas we use comes from North America. Only 3% of natural gas supply comes from imports of liquefied natural gas (LNG). Therefore, North American consumers rely most heavily on North American producers. While there is plenty of natural gas, companies must drill deeper and work harder to get at it. And we've picked over North America pretty well. Relying on larger imports of LNG is not feasible because it requires significant infrastructure - infrastructure that currently meets with all sorts of political pressures opposing it. Perhaps someday LNG will be the answer, but that appears years and years away. All of these reasons, combined with the steep slide in gas prices, lead to me to think warm bullish thoughts about natural gas - the creator of that familiar blue flame. Still, my crystal ball is as fogged over as ever on predicting future prices. But I do like the odds of higher gas prices in the near future. Joel's Note: Chris Mayer's aptitude for predicting future prices may be smothered by modesty, but that doesn't mean that we have to understate it too. As anyone who bought his special situations report on water a while back will attest, there is much to sing about when it comes to cashing in on Mr. Mayer's sound fundamental approach to investing. If you would like to learn more about the water crisis and, in particular, the companies set to benefit most directly from it, we encourage you to read this FREE report by Chris, Eric Fry and your Australian Daily Reckoning correspondent, Dan Denning. If nothing else, pay attention to the amount of hospital beds that sub-par water is responsible for each year…it will simply amaze you. A Special Situations Water Report --- Special Energy Report --- Forget OIL! That profit ride is over! Jump on three breaking crises a few savvy readers are whispering about. Everyone else hasn't a clue and will lose a king's ransom. YOU, however, may grow substantially richer. Inside: Your FREE Capital & Crisis report for Wealth Opportunists ONLY! ----------------------------- Doing his utmost to rid himself of his depreciating greenbacks, Joel Bowman reports… Nothing in Paris is cheap…especially when you are exchanging American dollars to survive here. Yesterday your penny-poor junior editor resisted the urge to jump the turnstile at the Clichy Metro Station and coughed up the two Euros for a ticket to the Eiffel Tower. We have long yearned to take in the panoramic perfection of Paris from this vantage point. We have seen the New York skyline from the Empire State Building and London's rooftops from the London Eye and were eager to compare the three. Arriving at the Trocadero station at around 8pm we navigated the throngs of other tourists, following the great light in the sky toward our destination. The price of admission to the top floor for an adult is about 10 Euro. For posterity, we have included a bird's eye view from where your junior editor could afford to stand. 
After this stunning experience, we decided to head to a bar and grab a drink. Two Kronenbergs later and we knew our money had been well spent. We'll be back tomorrow with more views from the winding streets of magical Paris. Until then, Au revoir! jOEL ----- Demise of the Dollar ----- Demise of the Dollar …and why it's great for your investments by Addison Wiggin The Demise of the Dollar examines the reasons for the dollar's slide - including the nation's historic trade deficit, the euro, government spending habits, globalization, and other international factors - and offers an up-close look at the Federal Reserve's attempts to "manage" the dollar's value. Addison Wiggin spent over a week in the #1 slot on Amazon's bestseller list - knocking Harry Potter to number two. He then showed up on Barnes and Noble's bestseller list and debuted on The Wall Street Journal's Business bestseller list at #8! The logical next step was for the book to get on the New York Times bestseller list…which it did, sitting strongly at #5! To purchase your copy, see: The Demise of the Dollar | 
