This is Martin Weiss with an emergency update on Hurricane Rita plus three specific recommendations on what to do right now.
The storm’s exact path of destruction is still uncertain.
But its sheer power and size are both frightening and unchanging approximately equivalent to Katrina’s, menacing a geographic area of the same dimensions, and threatening to strike the nation’s oil and gas supplies with a similar blow.
Regardless of your religious beliefs, pray that Port Arthur, directly in the storm’s path, will not be wiped out … that Galveston, already destroyed once by an unnamed hurricane 105 years ago, will be largely spared … that New Orleans, mostly under water just three weeks ago, will not suffer a second great flood.
And regardless of your investment strategy, pray that the core of the
oil industry refineries, storage tanks, port facilities, offshore oil rigs and pipelines will escape the storm’s primary blast.
I’m relieved to see that local officials have learned the recent lessons of Hurricane Katrina. They started evacuating earlier. And with the exception of yesterday’s massive traffic jams, they’re far better organized.
But they can’t move refineries.
Directly in the path of the storm, for example, is the Beaumont ExxonMobil refinery producing 349,000 barrels of gasoline per day. Plus there’s the Port Arthur Motiva refinery (285,000 barrels) and the Port Arthur Premcor refinery (255,000). Unless there’s a sudden shift, these are likely to get hit hard.
Nor can the authorities do very much to protect the massive network of rigs and pipelines that line the Texas-Louisiana coastline. These are going to suffer damage whether the storm stays on course or not.
The Worldwide
Energy Crisis
When Rita’s wrath is done and its winds are gone, Wall Street and Washington will probably breathe a sigh of relief. They’ll tell you it’s not as bad as feared or that its economic impact won’t last as long.
In this regard, I hope they’re proven right.
But then, they’ll also say the worst of the energy crisis is over … the peak in oil prices has been reached … and … inflation itself can soon be reversed.
On this score, I think they’ll be dead wrong.
As Larry, Tony and I have demonstrated repeatedly, the energy crisis is not just here in the
. It’s worldwide.
And it certainly didn’t start with Katrina or Rita. It goes back as far as Bill Clinton and the first President Bush. The main reason: Overinvestment in dot-coms and dot-bombs, underinvestment in energy infrastructure. Today, we’re paying the price.
Energy Demand More Than Expected!
Energy Supply Less Than Expected!
Today, the world’s energy demand, defying most computer models and forecasts, continues to grow around the world, even in economies that are underperforming.
Meanwhile, the world’s energy supplies, already grossly inadequate to cover the world’s needs, may actually be over-estimated.
Some prime examples …
is good at talking up production and reserves, but not so good at delivering. Indeed, over the past three decades,
‘s production targets have fallen precipitously from 20 million barrels per day in 1985 to 10 million barrels today.
Other OPEC reserves may also be overstated.
Reason: For each member of the Organization of Petroleum Exporting Countries (OPEC), there’s a production quota. And the quota for each country is based on a percentage of its reserves. So the larger the reserve estimate, the more a country is allowed to sell.
That gives every member country an incentive to overstate its reserves. And sure enough, in the 1990s when oil prices were low and many OPEC economies were in the gutter, suddenly, some countries started upping their reserve estimates in a scramble to sell more and gain revenue share.
‘s reserves were upped from 47 billion barrels to 100 billion.
‘s went from 64 billion to 92 billion.
So beware: In the not-too-distant future, the world could wake up one morning to the discovery that OPEC is suddenly failing to meet demand, and that phantom reserves are suddenly gone.
Indeed, a retired Vice President of Saudi Aramco, the country’s national oil company, has publicly admitted that Saudi reserves are less than HALF of what the country’s claiming.
This may, itself, be an overstatement of the problem. But even if the former Aramco VP is only partially right, the impact on oil markets could be explosive … which leads me to …
My First Recommendation
If you’re holding the energy investments we’ve recommended, stick with them. Despite the news that Hurricane Rita may not make a direct hit on Galveston and Houston, energy stocks receded only slightly.
In fact, if anything, what we may be seeing is a modest shift by investors from shares in Texas-based energy companies to shares in energy companies with operations far removed from Rita’s expected path.
Enerplus (ERF), for example, the Canadian royalty trust I’ve been recommending continually since I started this daily e-mail service, has barely budged from its all-time high this week, closing Thursday at $44.10.
Regardless of the impact of Hurricane Rita, if you own it, hold. If not, wait.
But be patient. You’re bound to see a greater price dip at some point in the near future, either from these levels or from higher levels. When it happens, act swiftly. Because it won’t last for long.
Ditto for the Oil Service HOLDRs, the exchange-traded fund which I’ve also been tracking closely for you. It reversed down a bit Thursday, possibly a signal of a bit more decline. But with Rita’s path unpredictable, anything is possible. Your best bet: Hold.
Meanwhile, in his Energy Options Alert, Larry has sent out flashes to take a slew of profits on the call options he recommended earlier. And as soon as there’s another dip in the oil stocks before, during or after Hurricane Rita he’s going to recommend a whole NEW slew of call options.
But his service will soon be closed to all new members, possibly as early as this weekend. So if you’re interested in joining him, call 1-877-719-3477.
If not, consider buying some inexpensive call options on your own, focusing on companies specialized in repairs or in companies that will not be negatively impacted by Rita.
Either way, be sure to use strictly funds you can afford to risk, keeping the bulk of your money in more conservative investments.
Gold Speaks Out
Gold has spoken loudly and clearly.
It has busted through three layers of resistance. It has blasted to 17-year highs. It has jumped to as much as $475 this week. And soon, after a brief dip, it’s headed for $500 or beyond.
This surge in gold represents a definitive recognition of a turning point in history massive changes sweeping the globe, driven by out-of-control federal deficits and a still-huge trade deficit.
More on these twin deficits in a moment. But now …
My Second Recommendation
One of the gold investments I’ve recommended in my Safe Money Report is Royal Gold (RGLD), a company with interests in a diverse portfolio of gold mines.
Like Enerplus, it gives you a vehicle for playing the sector with a relatively small investment. And like Enerplus, it has been going up virtually nonstop.
Unlike Enerplus, however, the stock can be relatively volatile; and with volatility naturally, there’s both more potential reward and more possible risk.
Right now, for example, while Enerplus is holding firmly near its highs, Royal Gold has just dipped below $26. Assuming the stock’s recent uptrend holds, that dip puts it firmly in a buy zone right now.
Given the stock’s meteoric rise in recent months, buying now is certainly not risk-free. But if you’ve been watching it from the sidelines, waiting for an opportunity to jump on board, this could be it.
Dollar on the Brink
Foreign investors smell trouble in the deteriorating
budget deficit, but they’re holding their noses. They’re not yet selling the dollar in massive quantities.
Foreign central banks see the still-huge trade gap, but they’re covering their eyes. They’re not yet dumping the dollar as the world’s leading reserve currency.
It’s obvious to everyone that dark clouds are everywhere. But the mass evacuation from the dollar has yet to begin.
The Financial Times puts it this way:
Just before Katrina hit there was a glimmer of hope that
‘s budget deficit was starting to improve. The monumental swing from surplus under President Bill Clinton to ever-growing deficit under President George W. Bush seemed to have been halted at least for a while by bumper tax receipts.
Now the hurricane seems likely to send American public finances plunging deeper into the red. The White House, sensing unrest in Republican ranks, has stressed that the total rebuilding cost remains unknown. But, with $62.3 billion already appropriated, it seems reasonable to expect the Federal government’s final bill will reach $200 billion.
Analysts worry that bills for grandiose ventures tend to get bigger. Fiscal experts are losing count of the number of supplemental appropriation bills needed to fund the conflict in
. A recent report by the government’s chief investigator said even the Pentagon was struggling to keep track of the funds being spent.
My forecast: Even assuming the damage caused by Hurricane Rita is not as bad as Katrina’s, expect a record-smashing budget deficit EASILY exceeding $500 billion next year.
Meanwhile, the July trade deficit narrowed to only $57.9 billion. But it was still one of the largest deficits in history. And, naturally, it did not reflect the huge surge in oil imports now needed to replace domestic oil sources.
Inevitable result: A sharp decline in the U.S. dollar.
To protect yourself, be sure to allocate a portion of your money to investments that typically go UP when the dollar goes DOWN. These include energy and gold investments, and, at the right time, foreign currency CDs. (See my Safe Money Report for more details.)
My Third Recommendation
In the wake of Hurricane Rita, the American Red Cross is going to be swamped; its resources, stretched.
Earlier this week, in order to shift urgently needed staff to the most vulnerable areas in Texas, it had to close down critical field offices that were serving still-desperate Katrina victims in Mississippi.
That’s a terrible shame. To help overcome this urgent dilemma, you can donate money, time, goods and services, shares of stock or even airline miles. Call 1-800-435-7669. Or visit their website at http://www.redcross.org/donate/donate.html.
If you prefer other organizations, that’s fine. Just make sure they’re reliable. Check at Charity Navigator, a non-profit group that provides a list of reputable hurricane charities plus guidelines for intelligent giving.
Good luck and God bless!
Martin
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 Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
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