Floridians vote to conserve - what's next in the Obama Administration

I am now happy to state that the conservation initiative on the ballot in Florida was passed, with 68.4% of the vote. If I in any way helped voters come to this conclusion I am especially pleased.

Looking forward I would add that I hope that actions of Florida residents leads to similar actions in other states as well. There is no negative in setting aside some land for conservation. Trees are a good thing for everyone. And the bonus of a tax incentive never hurts in a bad economy either.

Looking further forward, we can expect that the Obama administration will seek to further conservation efforts. These will be efforts that will be mixed in the public’s eyes. That is because the plans as stated will be painful to the average American as opposed to plans like that in Florida.

I am speaking directly to 2 things President Obama has been quoted on. The first is his desire to see the cost of energy, specifically electricity, to go higher. The reason for this is to force conservation through lack of funds. The reasoning is that by forcing prices higher, less energy will be used and thus conserve more. The initial step is expected to hurt the economy slightly, in President Obama’s view, and will take a short while for the public to adjust to. Thereafter the benefit will continue and Americans will be comfortable in that environment.

The other item is the recently released tapes of President Obama, before the election, stating that his goal is to effectively cause the creation of coal powered plants to be fiscal suicide. His plans will cause coal power plants to become bankrupt.

This would have several effects. the first is to increase the cost of electricity – explained above. Another would be to limit the amount of power available at any time. Again this would force consumers to use less power to ensure that blackouts and brownouts do not occur. Additionally this would significantly improve the air quality from the U.S.

I am no fan of forced conservation, as you may gather. I believe in education and incentives to mold behavior. Obviously not everyone agrees with that plan.

If President Obama enacts his conservation plans as previously stated, America will consume fewer fossil fuels and help worldwide conservation efforts. And like most types of change some pain will be felt. But such efforts are not enough, even if they are effective.

The world is far more than just America. And while America contributes greatly to the use of fossil fuels, poor air quality, land usage, and waste creation we are not the only cause of these negatives. China and India are increasing their output and consumption of these negatives annually. Even with a drop in U.S. rates, without worldwide attention and conservation efforts China and India alone will soon make up for any decreases in America. That scenario is counter-productive and troubling.

I expect and anticipate the efforts of President Obama and his Administration in speaking with these and other nations. And if I can suggest anything it would be to provide a carrot and not a stick in persuading other nations to curtail their usage rates. Like in Florida, when people are given an alternative and a bit of sugar they take the medicine without complaint.

If you agree with my view, tell your elected officials. Because they will listen even if they don’t have to fear elections for a year.

But if you disagree, or have a better solution, please do share it.

Are mining stocks the safe haven from the bailout crisis?

There is no deal on the bailout of the U.S. financial markets as of this moment. Treasury Secretary Paulson is in the White House as I type trying to create a new plan. The Congress is busy trying to make their own plans as well.

That is the situation that the world markets will be facing tomorrow. And in the wake of this revelation I expect that the Dow Jones Index and other markets will retreat in the face of an unsure weekend. Which means that this is a great market for mining stocks.

I have already mentioned that I feel that coal mining is a great area for the future, based on the need of alternative sources of energy to crude oil. But when the markets are in turmoil, and with direct talk from the likes of Warren Buffett stating that the potential of failing to get a bailout deal done is akin to a financial Pearl Harbor, well there is just 2 place you can bet people will go – gold and oil.

Gold is the traditional hedge in worrisome times. And crude oil has gained in popularity as a hedge as demand has increased in China and other developing nations. Both of these items are limited commodities, and require mining to bring them from the earth that surrounds them.

In the immediate short-term gold will have to fluctuate to handle the demand for safety. Which means that the gold supply will diminish and mines work harder to make up the difference. In the short and long-term oil is both required for energy needs and depleting the finite supply.

And I have to say that mining stocks look great because of all these factors. Why?

There was an old saying from when I was a stockbroker

“You may or may not get rich looking for the gold vein, but if you own the picks and axes you’ll never go poor.”

Companies with proven assets in coal, gold, and oil are the picks and axes of this market and on into the future. The world needs these commodities for safety and energy. No matter the financial outcome, and perhaps because of it, these valuable commodities have to come up to the surface. And mining companies are the means to do so.

With the decreased liquidity in the capital markets, competition is reduced and weaker companies will be forced to merge with bigger and stronger companies. Thus supply will be centralized into fewer hands. With demand up, profits will increase.

Now some would say that this is a temporary blip. And were this the spring I would agree. But with winter and cold weather approaching, and the fact that a slow 4th quarter is all but guaranteed in the U.S. this small blip should last for 6 months from this point.

Plus the fact that a Democratic President has usually been met with a lower market day one. In this case, Senator Obama has yet to declare that the current bailout of $1 trillion (including AIG and Fannie Mae and Freddie Mac) will disallow his initiatives on healthcare and other social programs. So the damage, unless he changes his stance, will even be worse.

When you consider all this, I come to the conclusion that mining stocks are one of the few safe havens in this tumultuous market. If you disagree, please do let me know why.

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!

Mining stocks in the 2nd half of 2008

Oil is in the middle of the summer breather, gold has backed off the stellar highs reached in the 1st quarter. Inflation is in the background, and the mortgage housing crisis continues to hinder the financial markets. Well back on July 2nd I mentioned that

“Energy shortages, most notably in South Africa but also in North America and Chile, forced supply down artificially helping to boost prices. But that is a problem that has been in the works of being fixed since the 1st quarter. Once it is done supply will rise to meet the growing demand and be a signal for profit taking.”

It seems I was right. So what might an investor do and look forward to?

Mining stocks continue to hold one of the better risk reward scenarios for a long term outlook, I think. While many sectors of the markets are slowing there is huge potential in the mining sector for reasons most are not discussing now.

Because of the huge run on gold and precious metal prices early in the year, many of the mining companies took the opportunity to horde cash and survey the landscape. Several of these companies are taking the current indecision in the markets to use that cash to acquire some of the competition. Lonmin was recently offered a takeover valued at roughly $2.5 billion. Vale of Brazil is looking for a potential match with $12 billion in its coffers, while BHP Billiton and Rio Tinto are doing merger dances.

But a merger is only one reason why the current lull in metal demands is a buying opportunity in mining stocks. China and India are far from peak of their demand for metals. Both of their economies are in growth phases and require more raw resources.

China is not only using more metal, they require much more energy. Already China has grabbed the excess crude oil that has become available from the slowdown in the United States. Soon they will have increased their need enough to be driving up crude oil prices even if America lessens its demand via domestic drilling or increases alternative fuel sources.

And of course there is the aspect of fuel sources outside of crude oil. The world is looking for options and needs energy until a renewable alternative becomes viable. That means an increase in mining and processing of oil shale, coal, and uranium. While nuclear has its detractors it provides too much energy to be ignored, and is relatively clean. A new process for coal is in talks in America, making its use cleaner and a readily available domestic stopgap for crude oil. And oil shale has a potential that still remains unknown on the large scale.

Each and every one of the reasons above is likely to show their influence before the end of the year. With the political situation in America poised to change energy consumption trends after the Presidential election, mergers creating more efficient (and profitable) mining companies, demand pressure from China and India even a slight increase in crude oil prices (as winter approaches) or a rush to gold and other precious metals as a hedge for inflation and/or weak markets means that mining stocks are well poised to outperform virtually all other sectors by the end of 2008.