Financial stock weaken, but coal looks great

Back when I was a stockbroker (I know, it’s a bad word today) I had a buddy that love to quote this old brokerage saying.

“Bears make money, Bulls make money. But pigs just get slaughtered.”

Obviously the Board members of AIG, Lehman, Bear Sterns, Washington Mutual, and more than a few other financial companies didn’t know that saying.

But the blood is in the water and panic is in the streets. Ok, enough of the sayings. The fact is that the financial markets are screwed right now. We have hit my target of 10,800 on the Dow Jones Index – though not in my timeframe. My target of foreclosures has been exceeded, currently targeted at 9%. And my list of probable factors are being checked off 1 by 1.

So far:

1. Confidence in all financial will go lower forcing the need for more liquidity
2. Several institutions will fail - focused mostly on those dealing with housing markets first
6. Home foreclosure will hit 5.5%
11. Republicans will be blamed

Now that is only 4 out of 15 on my checklist, but they are the big ones. Gold is rising as a hedge to the dollar and to protect assets. As is crude oil. The Dow has nearly hit my December target of 10,200.

So what do we do?

I say buy. There is no greater time for profit than when everything is in a freefall down. Of course picking your time and which stock is essential. I like the financials, because the winners will rally strongly once things settle.

I would avoid Citigroup. They insure their own product and had massive exsposure to bad mortgages. I would avoid Insurance companies since I expect that regulation restricting their abilities to own other assets will be restricted shortly.

But what else is there to buy. In every down market something always goes higher. And there are always leaders on the way back up.

Coal is a great area. Energy is one of the top 5 issues on the minds of voters. Politically it’s a go to industry. Increasing coal use is positive because it means less foreign oil, increased business domestically, increased international trade, and cheaper energy prices to consumers.

Also if coal is liquified then we see the potential for a fuel that is carbon-nuetral as compared to oil. The cost of this process is about $35 per barrel equivalent to oil. That means a savings of some $55 or more dollars per barrel at current prices. Yet at this moment production is minimal.

And coal is plentiful. At current energy consumption rates there is enough coal to power the entire world for 57 years, or just the U.S. for 164 years. And did I mention that the U.S. has the largest reserves in the world. This says nothing of the coal-bed methane that is a potential energy source as well.

A couple of interesting names in the sector include:

Arch Coal
International Coal
Walter Industries
Peabody Energy
Patriot Coal
Massey Energy
Alpha Natural Resources

Now if we are seriously looking for options in this difficult market, taking into consideration political advantages, energy needs, stability, domestic economic benefits, and isolation from the turmoil of the financial markets we have to look at coal. It just seems like smart money to me.

The financial industry will be merging and bouncing around. There will be regulation and political fights about who is doing the right thing. The dollar and crude oil and gold will get stronger or weaker and then back. Smart money looks at panic and sees the road to profit in the future.

Eventually, perhaps even now, financial stocks are attractive but you will get lumps in the near-term. Gold is too emotional. Crude oil is where everyone is trying to get away from. But you like to get on the internet right? Like lights at night? Want to watch TV and stay warm? Energy is the answer, and Solar, wind, biomass and other alternative energy sources don’t exist – nor will they for at least a decade.

It makes sense to me. So like I used to say as a stockbroker

I love life!

Renewable portfolio standard: 2 sides in one nation

When it comes to alternative renewable green energy, in the United States there are basically 2 factions. I think that a good example of the 2 sides can be seen in Pennsylvania and Michigan.

Taking a look at Michigan, a state that has been devastated with lost manufacturing jobs; there is the fact of a lack of initiative. In 1991 Iowa became the first state to create a renewable portfolio standard, effectively requiring the state to seek out and generate a portion of it’s energy usage from wind, solar, biofuel and other renewable energy sources. 17 years later there are 24 states that have their own renewable portfolio standards; Michigan is not one of them.

The fact that Michigan continues not to have a renewable portfolio standard flies in the face of Republican Gov. John Engler’s effort with NextEnergy, a nonprofit that sought to accelerate development of an alternative energy industry in Michigan. Add to that the 2005 State of the State speech by Gov. Jennifer Granholm which pushed for the creation of a renewable portfolio standard.

Yet with renewable energy growing at a pace of roughly 30% a year and $9 billion invested last year in wind energy alone in the U.S., Michigan has yet to take part. But to be fair Gov. Granholm is recently quoted as stating that she is viewing this area in a Machiavellian manner,

“I think this is such a moment for us to capitalize on, creating this whole new sector here," Granholm added, warming to her cause. "And if other states have done it without the resources that we have, then we can certainly explode onto the scene."

On the other end of the spectrum is Pennsylvania. The State Senate has already passed legislation advancing wind power, and other clean energy sources like solar and biofuels. The State House is currently debating their version with $30 million for grants and loans to develop wind energy and the manufacture of wind energy turbines passed on February 13th by a landslide vote. In addition there was $5 million for low-interest loans to people who install more energy efficient systems to heat their homes. $25 million is to go for high-performance "green" buildings of which 300 buildings are estimated to be built.

In total the debate is currently centering on $850 million for the bill that would promote energy conservation and increase the types and amount of renewable energy sources. And with that improvement it is also noted that,

“For every dollar we spend in wind energy investment, we can leverage 12 in the private sector," said Majority Whip Keith McCall, D-Carbon.”

And there is the crux of the issue. Billions of dollars and new jobs are being generated by the use of renewable clean green energy sources. The mandate of states requiring generation from these sources has been beneficially working since 1991. And growth is rising at an enviable rate throughout the country. Yet 22 States continue to support a dependency on oil and coal.

Considering the 2 examples above, the reasoning of the remaining 22 states seems faulty at best. Maybe the Machiavellian view exposed by Gov. Granholm is in fact acting in the best interest of the people, and required by more Governors. But with so much growth and the resulting positive effects on the economy and environment, we can only expect that resistance will not endure.