When energy markets are flying and investors are making money hand over fist, you cant always count on getting another chance to jump in.
But now you have it: In just the last two trading days, the energy market has had a mini-correction.
Our view: This is a big gift! It opens up a window for late comers who want a crack at the same kind of profits earlier investors have already been making.
Like all previous corrections weve seen, it has done nothing to change the upward trend in oil prices. It has not altered the powerful fundamental forces we have been telling you about:
The Tyranny of Iran
Iran is the rogue terrorist state with chemical weapons and nuclear programs that Iraq turned out not to be.
Iran is the only country on the planet that is directly supporting international terrorism, officially vowing the destruction of another nation, and openly defying the community of nations.
Iran is also the one country in the world today with both the ideology and the ability to take down the global economy.
And yet, while Tehran seems to have the chessboard of what-ifs and contingency plans mapped out, Washington is still playing checkers.
Heres how each and every move by the U.S. and its allies could be checkmated.
Move #1
Sanctions
One week ago today, the UNs International Atomic Energy Agency (IAEA) slammed Iran for non-compliance with its ultimatum to cease its nuclear enrichment program.
But Iran has drawn a line in the sand. Just yesterday, the chief of Irans army ground forces, Brigadier General Mohammad-Hossein Dadress, said that no country would dare attack the Islamic Republic since Iran had scientific knowledge about the enemies weak points.
Meanwhile, Britain, France and Germany introduced a new resolution in the UN Security Council asking nations to restrict nuclear trade with Iran and demanding that Tehran stop its uranium enrichment program. But the resolution has done nothing to break the impasse.
Quite to the contrary, the belligerent rhetoric from both the U.S. and Iran has been raised several notches Washington sending out louder and louder messages about military action … Tehran warning that it will attack Israel … and neither side budging an inch toward any semblance of a compromise.
Checkmate by Iran: What will happen if the UN imposes sanctions? At the very minimum, Iran will deploy its oil weapon. Indeed, in an interview with the Wall Street Journal last week, Irans oil minister declared:
The need of the world for energy is soaring, and if Iran is taken out of the equation, prices will shoot up and there will be big difficulties in the energy markets.
The Contra Costa Times puts it this way:
Irans key ally in the current nuclear crisis is not Russia or China. Its oil. Tehran can easily drive up prices and is already beginning to do so to rattle the West. In the end, Irans petro power will probably trump Western diplomacy.
In short, Iran has the most powerful economic leverage of any rogue country in modern history.
Move #2
The Threat of Military Action
Pentagon officials are now privately admitting that plans to attack Iran are much more than just contingencies.
Meanwhile, Israeli officials make no bones about sending that message publicly.
Israeli Intelligence chief Dagan has declared that a nuclear Iran is the worst-ever threat to the countrys existence. Israels Defense Minister Shaul Mofaz has stated that under no circumstances would Israel be able to tolerate nuclear weapons in Iranian possession. And Israels interim prime minister, Ehud Olmert, compared Irans president Ahmadinejad to Adolph Hitler calling him a psychopath of the worst kind.
Checkmate by Iran: The Strait of Hormuz! This is the narrow, four-mile corridor between Iran and Oman through which every single tanker leaving the Persian Gulf must pass … the single most vital choke point on the planet … the one strategic location that, if disrupted, could sink the global economy. And yet, it sits right in the bowels of Iran.
Indeed, the Supreme Commander of Irans Islamic Revolutionary Guard, Major General Yahya Rahim Safavi, called the Strait of Hormuz the economic lifeline of the West and said Iran could use it as a vehicle for wreaking economic havoc.
And earlier, during the Iran-Iraq war, Irans President Ali Rafsanjani said: We would close the Strait of Hormuz if the Gulf became unusable for us. And if the Gulf becomes unusable for us, we will make the Gulf unusable for others.
The Persian Gulf is responsible for 32% of the worlds oil production capacity … 45% of the worlds natural gas … 57% of the worlds oil reserves, and … 100% (and more!) of the worlds excess capacity. And about 90% of this oil and gas passes through the Strait of Hormuz.
Therefore, just as soon as the West threatens Iran with military action, Iran can threaten the Strait of Hormuz, cut off up to one-third of the worlds energy supply, and drive oil prices into the stratosphere.
The Irony of Oil
Despite all these threats, most people regard oil as already high and therefore unlikely to go that much higher. Its a classic mistake.
Their error: They greatly underestimate the potential surge in the price of natural resources that are both critical and scarce.
Even without a crisis in the Middle East or a blow-up in the Persian Gulf, oil prices have been moving inexorably higher for four years. Even absent the three ways Iran can checkmate the West, the surging worldwide demand for oil is unwavering.
Thats whats responsible for the long-term uptrend in oil prices that you can see so clearly in our charts. And thats what could soon drive oil prices to $80, $90, or even $100 per barrel.
Indeed, the only way oil prices are going to come down is if they go up sharply first. Dramatically higher oil is the only force capable of curtailing demand. And therein lies the irony of oil.
That irony, however, is your profit opportunity. It gives you the relative certainty you need to help reduce downside risk … plus the relatively good probability of blowout success.
When and How
The Iran Conflict
Could Unfold …
by Larry Edelson
Martin has told you about why a conflict with Iran is both inevitable and potentially very dangerous. Now, let me show you when and how the conflict could unfold. But first, consider these critical facts:
When: Irans first nuclear plant, a 1,000-megawatt (MW) nuclear reactor in Blusher in southwestern Iran, is almost live. If that facility starts up and is then attacked, there could be a major radioactive disaster in the region.
So, in my opinion, any attack on Iran is likely to occur before that facility goes on line. And based on the latest public information, thats about seven months from now.
How: If the U.S. decides to launch a strike, it will probably have the Air Force and Navy launch quick, air and/or missile attacks aimed on Irans nuclear capabilities. The goal: To set their program back a decade or more.
The U.S. has 150 aircraft and several hundred missiles in the region. So the strikes would likely be aimed at the primary nuclear facilities, including the soon-to-be ready Bushehr station, the Tehran Research Reactor, radioisotope production facilities at the Esfahan Nuclear Technology Centre, along with enrichment plants at Natanz and Arak.
Warning: Just this week, Iran announced it would attack Israel in retaliation for a U.S. strike. While that might not affect us immediately, such action would further destabilize the region and elevate the clash of civilizations to an even larger stage.
South America:
More Ticking Time Bombs
This past Monday, Bolivias President, Evo Morales, announced that foreign energy firms will be reduced to mere operators of the gas fields. In their place, the state-run Yacimientos Petroliferos Fiscales Bolivianos is stepping in to take over ownership of all the gas thats produced.
This is just the latest in a string of actions by Latin American governments to snatch back valuable assets from the hands of foreign companies.
The question is: Will Cezar Chaves do the same in Venezuela?
On Wednesday, Chavez rounded up some Venezuelan oil industry technicians, jetted off to La Paz, met with Morales to find out more, and offered direct assistance.
Surprised? If youve been getting my Real Wealth Report, and you read my February issue, you shouldnt be. In it, I warned of this exact situation. Dont take this lightly. At stake are…
- More than 6 million barrels a day of crude oil production. Thats 30% of the U.S. consumption needs of 20 million barrels a day of oil.
- 63 million tons of coal.
- 1.9 million tons of copper smelter production. 378 tonnes of gold. More than 258 million ounces of silver.
The potential repercussions are far-reaching: Under the most radical regimes, mining companies, oil producers and more are at high risk of being nationalized, taken over by worker revolts, taxed into oblivion. Or all three.
The Peak in Global
Oil Production Is
Here or Very Near!
by Sean Brodrick
Martin and Larry have done a great job of talking about the worlds unfolding geopolitical problems. But theres also another, more fundamental problem at work when it comes to the impending oil crisis: Peak Oil.
Peak Oil is that critical threshold beyond which most of the easy-to-reach, cheap oil is depleted … and mostly harder-to-reach, expensive oil remains. Peak Oil is the turning point beyond which oil production begins an irreversible, long-term decline.
Thats where I think we are today, or very, very close. Consider the facts …
Fact #1. Over the last four years, the world has been
consuming six barrels of oil for every new barrel found.
Big oil companies continue to add to their reserves, but mainly by buying up smaller oil companies. That does nothing to boost the available reserves overall.
And the big oil companies dont seem to be in any hurry to find more oil, either. Maybe thats because they know the cheap, easy oil has already been found.
Fact #2. Crude oil prices are already at their highest levels in decades even BEFORE the next round of hurricanes ravages the Gulf of Mexico.
Here we are, just weeks away from the start of this years hurricane season, and more than 20% of Gulf of Mexico oil production (and 13% of natural gas production) is still offline from last years storms! How high do you think oil prices will go if more hurricanes pound the Gulf this summer?
Fact #3. The globe is already being strangled by a supply/demand crunch!
The International Energy Agency estimates 2006 world oil demand at 85.1 million barrels per day (bpd). But in March, world oil supply fell 125,000 bpd to an average 84.5 million bpd, in part because of lower output from Nigeria, Canada, and the U.K. In other words, supply is already failing to meet demand and thats without a catastrophic disruption of oil production anywhere!
Fact #4. Major oilfields are already in decline.
Oilfields in Texas, the North Sea, and Kuwait are all declining. Most recently, Mexico confessed that its super-giant oil field, Cantarell, is irreversibly declining and may be heading for catastrophe due to complications from new technology used to accelerate oil production.
The final fact: Global oil production hasnt significantly increased since 2004.
Will new drilling technology save us? No. Technology mainly allows us to drill faster not smarter. The faster we drill the more quickly we deplete the oil wells!
Will corn ethanol do the trick? No. When making ethanol from corn, the energy return on the energy invested (EROEI) is only about 1.5 to 1. Not good.
Will Canadas oil sands make the difference? No! Canada says that by 2025, its tar/oil sands will yield no more than a seventh of the oil we need. Moreover, in Canadas oil sands, the rate of production is painfully slow and the energy consumption to get the oil out, very costly.
Bottom line: Its going to take many years, even decades, to get new technologies and alternative energies up to speed in volumes that are large enough to make a difference. Until then, I think Peak Oil will continue to drive oil prices inexorably higher.
How can you capitalize on these trends?
If youve been following Larrys Real Wealth Report, you should be sitting on a mound of profitable positions in natural resource companies. But if youre looking for an even more aggressive path to profits, check out his Energy Options Alert.
Warning: There are only 101 slots left, and theyre going fast. Call us at 1-877-719-3477 to get in.
Plus, here are some other vehicles to consider:
- Enerplus (ERF), the leading Canadian energy trust.
- U.S. Globals Global Resources Fund (PSPFX), up 17.4% so far this year.
- Oil Service HOLDRs (OIH), the exchange-traded fund, which, like oil itself, has also been zigzagging higher at a steady pace.
But always remember: No one can predict the future with precision, and risk of loss is forever present. So always keep a substantial portion of your assets in the safest place you can find, such as short-term U.S. Treasury securities.
Cracking the
DeVice Code
by Tony Sagami
Wow! A lot of weighty matters to think about over the weekend, guys. Heres a lighter question:
What device is potentially more popular than an iPod and possibly more profitable than selling 40 million copies of The Da Vinci Code? My answer: The Sony reader.
Sony (SNE), one of the most innovative technology companies in the world, is about to release a new product that will revolutionize the book industry much like the iPod revolutionized the music industry: the new Sony Reader.
The Reader, expected to hit U.S. retail shelves this summer, is an amazingly functional and lightweight (8.8 ounces) portable electronic book reader that keeps hundreds of books at your fingertips.
For investors, the key is that Sony is copying Apples ultra-successful business model by bundling the hardware and the books into one easy-to-sell package.
The Sony Reader will retail for $299 to $399 depending on accessories, and Sonys online bookstore will offer about 10,000 titles, including The Da Vinci Code. Youll be able to download hundreds of books within a few minutes of taking a Sony Reader out of its box.
And the applications for the Sony Reader go far beyond just books. For example, several major newspapers are testing e-paper initiatives that would turn the Sony Reader into an automatically updated electronic newspaper.
Plus, the Sony Reader also reads PDF files; Internet downloads, such as blogs and news sites; JPEG photos, and AVG audio files.
Enjoy the Doodad,
Love the Stock
As you can no doubt tell, I am pretty impressed with Sonys Reader.
More importantly, I expect the product to supercharge Sonys profits, much like iPod did for Apple. Plus, theres a lot more to love about Sony than its new Reader:
- The company is well diversified, with an array of business units.
- The Sony Playstation 3 is scheduled for a November release, and
- Sonys Blu-Ray, a new DVD format, will be launching in the future.
I expect both Playstation 3 and Blu-Ray to be major profit boosters … but not immediately. And Sonys recently released first-quarter results werent that great. So my advice is: Buy on the Dips!
Another Company
To Watch Out For
If youre interested in a pure play on media readers, keep your eyes peeled for an IPO by iRex Technologies, a small Danish company, which is a spin-off from Royal Philips Electronics.
Why? Because it will be making its own version of a portable electronic reader called the iLiad.
Because its a start-up, its shares are certainly going to be a more risky and volatile investment than Sonys. But it could also turn out to be like investing in Apple when it was still operated out of Steve Wozniaks garage.
Final Thought: Keep Looking Overseas
You see, there are also good things happening overseas. Whether its Sony in Japan or iRex in the Netherlands, tons of innovative companies are building the next wave of great products … and in the process, theyre becoming the next wave of great investments.
So curl up with a good book, turn up your iPod, and have a great weekend!
Best wishes,
Tony
For more information and archived issues, visit http://legacy.weissinc.com.
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2006 by Weiss Research, Inc. All rights reserved.
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