Let’s start with Oil and the commitment of traders (COT) report. Note that from 2002-2010 commercial traders cumulative position ranged from short 100K contracts to long 100K contracts. In early 2010 their net short position dipped below 100K contracts before moving closer to neutral around mid-year. Since then, speculators (non-commercials) have gone furiously long the market as the commercial net position has surged to over 300K contracts. I looked at historical charts and this position is a record.

Not only the professional speculators who are long energy so too are the retail players. Our evidence is the Rydex data and chart from sentimentrader.com. This shows fund flows in Rydex’ Energy Fund. The middle column shows assets in the fund and the bottom column shows assets in the fund relative to all other sectors. Needless to say, these metrics have exploded in the last six months.

Keep in mind that sentiment follows the trend. More and more bulls means higher prices. Yet, when there are too many bulls around or too much money going into a market, it poses a short-term risk and creates an environment that is ripe for profit taking. One reason we like energy is because it often peaks after the stock market. For example, if the market peaks in April or May then energy could peak in August or October.

That being said, it is time to be cautious on energy in the near-term. We know little about geopolitics but we do know that there is record speculation in the Oil market and that will end at somepoint. Does it end at $120 Oil or $90 Oil? We don’t know but we do know that there is huge risk in the market with a record speculative long position. Meanwhile, tons of retail players have already piled into the shares and could move out on any sudden change in the situation in the MidEast.

For more analysis and forecasts, consider a free 14-day trial to our Commodities service.

Good Luck!

The Energy Report: Shares in Pinetree Capital have had a good run in the last six months, going from about $1 per share in July 2010 to about $3.38 now. What’s largely responsible for that remarkable run?

Marshall Auerback: A number of things. I think Pinetree has been an undervalued stock for a long time based on its net asset value. But we had very adverse financial conditions in 2008, particularly adverse for small-cap companies, which comprise most of our portfolio. Even though we started to see an improvement in the credit markets in 2009, they really didn’t start to loosen up until last year for the smaller companies. Your risk in holding these small caps is not so much market risk as liquidity risk. A number of these companies had cash on their balance sheets but they were clearly capital-constrained because they were dependent on ongoing capital injections to develop these assets.

In 2010, the capital markets began to re-engage and that made it easier for some of these companies to access funding. In turn, they were able to develop their assets, which helped improve their share prices. But it took a while. The markets were basically trendless until about September of last year, then all of a sudden you have this big move in the commodity space. Clearly, that’s Pinetree’s sweet spot.

TER: Your stated objective is to “invest ahead of the crowd by anticipating emerging trends and macro changes in consumption and translate that knowledge to successful investments in small- and micro-cap companies.” What macro changes are taking place in the energy market, and more specifically in the uranium market?

MA: People have discussed peak oil for a long time. It’s been controversial. Some people say you can always find oil at a given price. We don’t disagree with that but the main thesis behind peak oil is that mother nature has only given us so much oil. The low-hanging fruit has largely been picked. It’s getting increasingly difficult to extract oil from conventional sources. If you look at each successive economic crisis and the price of oil during each one, we have continued to bottom at increasingly higher prices. Even in the worst conditions we had in 2008 and 2009, the oil price bottomed at about $36 a barrel and it didn’t stay there for long. It was driven by a collapse in demand.

The other problem in energy, in all commodities really, was a complete collapse in trade financing. So, we had both a financing shock and a demand shock, which caused this collapse in commodities. But as trade financing began to normalize and these emerging economies began to normalize, there was a big increase in demand. Along with that you’ve got very significant shortages in supply. The BP Plc. (NYSE:BP; LSE:BP) oil-spill disaster that occurred in the Gulf of Mexico is a symptom of the supply problem. We wouldn’t be drilling for oil three miles below the surface of the ocean if it were easier to get oil from more conventional sources. To me that’s symptomatic of a fact that you have to look for the oil in increasingly expensive places, which means increasingly expensive oil.

TER: How is expensive oil influencing the uranium market?

MA: Clearly, as the oil price has continued to appreciate people have started to look at alternative fuels. For a while the sexy ones were wind and solar, but there’s very low power densities in those types of energy generation. Wind is intermittent. Obviously, solar is not a great resource to use in cold-climate countries like Canada or Russia. Natural gas is an important transitional fuel, but there’s also uranium.

To me, a seminal moment in the uranium market occurred about five years ago when James Lovelock, a leading environmentalist who used to be the head of Greenpeace, said that uranium has to be a major part of our response to global warming. Before that, uranium was seen as part of the problem, not part of the solution. Clearly, the nuclear waste issue hasn’t gone away but we treat the stuff a lot more effectively than we used to. The waste problem relative to the millions of tons of coil that get belched out into the atmosphere is fairly minimal.

I think the reason we like uranium is because it’s both a supply and demand story. On the demand side, a number of nuclear reactors are under construction. Haywood Securities Analyst Geordie Mark says there’s been a 61% increase in the last couple of years. There’s also been a 54% increase in the number of reactors planned and a 45% increase in those proposed. These new plants alone will eat up 32,900 tons of nuclear fuel annually—that’s almost half the demand from this year’s 443 commercial reactors. We’ve got a very good story there, and then you have the supply side. The current price is around $68 and that’s still too low to support a lot of new investment. You need much higher prices to invest in large-scale, development-stage projects.

As it is now, the uranium industry is having a hard time boosting production. There have been shortfalls from large mines, such as Energy Resources of Australia Ltd.’s (ASX:ERA) Ranger Mine and BHP Billiton Ltd.’s (NYSE:BHP; OTCPK:BHPLF) Olympic Dam Mine in Australia. Of course, Cameco Corp. (TSX:CCO; NYSE:CCJ) had water problems related to reaching production at its proposed Cigar Lake uranium mine. Those are other problems.

TER: Do you think we will see another surge in uranium prices like that in 2005?

MA: Generally, I find that these moves in the commodity cycle take two phases. The first is the “fantasy” phase where you get recognition that a real supply/demand deficiency is developing. A lot of speculative moves are made and the stocks start to go up, but then they crash because it hasn’t yet been validated by actions in the real world. But this speculation moved ahead of reality. Typically, what happens is that you get a wash out, and then 18 months to two years later people come back and say, “This thing is for real.” We saw that happen in gold. There was a big move in gold in 2003 and 2004, but the gold price didn’t move up a huge amount. So, the market went dead for a couple of years. I think uranium would’ve had some interest in 2009, but obviously everything was superseded by the Lehman Brothers meltdown and the financial crash. So, it’s taken a bit longer, but I think the supply/demand outlook I’ve sketched here is still very much in existence. Now we’re starting to see an increasing amount of pricing pressure developing on uranium, which I think will help reignite interest in the sector.

TER: What’s your forecast for the price of uranium?

MA: The price could easily double over the next three or four years, and it could even go much higher. A number of these projects in places like Kazakhstan and Namibia don’t even begin to make money until the price gets closer to $80 or $90 per pound.

A lot of the demand will be driven by the pace at which these nuclear reactors are built. The problem here is that we’ve often got political delays. I don’t think nuclear construction in the U.S. will come for another four or five years because with natural gas prices being as low as they are there’s no urgency to move into nuclear. However, in other countries where natural gas prices are much higher, I think we’ll likely see accelerated development. Certainly, in countries like South Africa, we’re already seeing brownouts. China is definitely going to move ahead very rapidly, as is India—that’s going to be the big source of demand. It’s just a matter of how quickly these countries start to build reactors. It may be a case where, occasionally, perception races a bit ahead of reality; but the underlying reality is that uranium has the soundest supply/demand features of almost any commodity out there right now.

TER: As of Sept. 30, 2010, Pinetree had 55 separate investments in uranium plays. That accounted for 18% of your asset mix. With this expected price appreciation, do you want to keep your uranium exposure at around 20% or are you going to increase that?

MA: I think it really depends on the opportunities; we’re focused on a number of ventures. Again, you have to weigh the existing investments against the increased political risks as you move into some of these funkier countries in central Asia. You’ve always got to measure it against that. I think 20% is a fairly substantial bet, and I suspect that’s even higher now due to share price appreciation. But if it’s become a hot sector, we may start to look in an area that’s become less loved.

TER: You mentioned “funkier countries” in central Asia. Do you mean Kazakhstan?

MA: I have a view that it’s always tough investing in any country that ends with “stan.” Basically, I’m saying you have to be much more aware of that risk. Increasingly, we’re seeing examples of resource nationalism. And that’s not just in the emerging world, it’s in places like Canada. There were very significant resource-nationalism reasons for the Canadian government’s disapproval of BHP’s acquisition of PotashCorp (NYSE:POT; TSX:POT). I happen to think that was the right decision because I believe it’s much more valuable as a standalone asset. Increasing resource nationalism means you’ve got to be careful. You don’t want to develop something, and then find out the local government is taking 50% or more of it. I think that we have to make political risk assessments as part of our investment judgments going forward.

TER: What are some of your biggest success stories when it comes to picking uranium stocks?

MA: Mega Uranium Ltd. (TSX:MGA) is a classic example. It started to appreciate at $0.10 and got to $9 at its peak. That’s probably one of the best examples. A couple of other examples would be Rockgate Capital Corp. (TSX:RGT), which has gone from under $1 to $2.70 recently. It’s a uranium explorer and developer in West Africa.

Rockgate’s main project is the 100%-owned Falea Uranium/Silver deposit located in southwest Mali. It was initially discovered in the late 1970s by Cogema, now AREVA (PAR:CEI). Rockgate has expanded Falea substantially with 45,000 meters of diamond drilling now completed in more than 175 holes. This work identified a new zone of uranium and high-grade silver; and on May 15, 2009, Rockgate released the first independent NI 43-101 resource calculation for the Falea project reporting a total uncapped resource of 20,252,000 pounds of uranium and 31,600,000 ounces of silver.

Another company is U3O8 Corp. (TSX.V:UWE), which has gone from a $0.35 to a $1.03 stock. It acquired some projects in South America Mega Uranium last year. In Colombia, it acquired Berlin Project—a 38 Mlb. historic uranium resource at 0.13% U3O8—a high-value, multi-element opportunity with the presence of uranium, phosphate, vanadium, molybdenum, yttrium, rhenium and silver grades.

In Argentina, U308 Corp. has sizeable land holdings near the country’s largest known uranium deposits. The surficial uranium target at the company’s Laguna Salada Project there appears amenable to low-cost mining, and it’s working to complete an NI 43-101 uranium resource estimate on that project.

Additionally, U308 Corp. holds prospective lands in Guyana—in the Roraima Basin, which is similar to Canada’s Athabasca Basin in size, composition and basement characteristics. Its Kurupung Batholith Project has an NI 43-101 resource of 5.8 Mlb. at an average grade of 0.10% U3O8 (Indicated) and 1.3 Mlb. at an average grade of 0.09% U3O8 (Inferred). A pipeline of uranium-bearing structures will help grow the current resource at Kurupung, which is geologically similar to sizeable albitite-hosted deposits around the world.

Khan Resources Inc. (TSX:KRI) and Summit Resources Ltd. (ASX:SMM) would represent a few of our other big successes.

TER: What are some other promising uranium juniors Pinetree has in its stable?

MA: We like Mawson Resources Ltd. (TSX:MAW; OTCPK:MWSNF; Fkft:MRY), which has metal and energy interests in Finland, Peru and Sweden. The stock recently went from $0.75 to $1.99. And not long ago, the company increased its landholding at the Rompas Gold Uranium Project in Finland by 40%. Mawson has a strong cash position and a very prospective deposit. Highlights from recent channel samples included 0.95m at 1,424 g/t Au and 1.3% U308 and 2.05m at 191.3 g/t Au and 0.44% U308.

We also like Energy Fuels, Inc. (TSX:EFR), which is consolidating uranium mining in western Colorado’s Uravan Mineral Belt and eastern Utah, U.S.

TER: Let’s move on to oil. Global oil consumption has rebounded from the early 2009 lows and now exceeds pre-financial crisis levels. The usage gap between developed markets and their emerging-market counterparts has shrunk from 12 million barrels per day (Mbpd) three years ago to just 4 Mbpd. The International Energy Agency (IEA) forecasts global energy demand will rise to 82.2 Mbpd in 2011 up from 86.9 Mbpd this year—that’s almost 500 billion barrels annually. Where’s that oil going to come from?

MA: It’s a good question. Ultimately, I think that’s what keeps the bid on the price. You have these situations wherein you’ve got massive increases in demand and you just don’t have the available supply, so you’re going to see much higher prices. Milton Friedman once said the best cure for higher prices is higher prices because that’s how you solve the problem. I think we’ll see increasing price pressures. The possibility of a conflict developing or resource wars is rising. I think countries that are in the sweet spot are countries like Canada, which has very substantial energy reserves.

TER: Since it peaked in the 1970s, conventional oil production in Canada and the United States has been declining. Recently, the application of horizontal drilling and hydraulic fracturing to tight oil basins—or, as one oil pundit put it, “a replay of the shale gas movie with different actors”—is bringing a growing amount of light oil to market. Perhaps the best example is the North Dakota Bakken where oil production went from virtually zero a few years ago to about 250,000 bpd now. Are these new dense rock plays putting an end to the notion of peak oil, or is it too soon to declare that?

MA: It’s too soon to declare that. First of all, two things are going on there. We need these kinds of projects just to sustain the levels of demand going forward, but I don’t think they are a panacea to the problem of peak oil. It’s more accurate to look at them as the response to substantially higher oil prices from conventional sources. And some of the supply gains from the non-conventional sources are temporary. In the case of these Barnett shale-type developments, for example, you get very significant early production gains but the asset gets exhausted much more rapidly because the technology accelerates depletion rates. Working these tight basins may provide a short-term fix but it doesn’t actually solve the problem of peak oil. In fact, I would say it validates the whole thesis. If there was an easier way to find oil, no one would have considered it worthwhile to look at these areas.

TER: What are some of your noteworthy oil holdings?

MA: Brownstone Energy Inc.’s (TSX.V:BWN) stock has gone from a low of $0.27 to a high of $1.16; it’s currently trading around $0.75. The company’s main focus remains on its Colombian and offshore Israel projects.

In Colombia, the Canaguay # 1 well on the Canaguaro Block in the Llanos Basin produced oil at rates in excess of 3,900 bpd. BWN has 25% working interest and long-term production tests are expected to take place in February.

The offshore Israel project is a joint venture with Adira Energy Ltd. (TSX.V:ADL; OTCBB:ADENF). The Noble Energy, Inc. (NYSE:NBL)/Delek Drilling LP (TASX:DEDR.L) Tamar discoveries are within 60 km. of Brownstone’s Gabriella and Yitzhak Blocks. Completion of Adira’s 3D high-resolution seismic programs are expected in January 2011; so far, the results look very promising.

Donnybrook Energy Inc. (TSX:DEI) is an emerging Canadian oil and natural gas explorer and producer we like. It’s focused on Montney, Bluesky Wilrich and Fahler formations in the Deep Basin, West Central Alberta. The company now owns working interests in 46 gross sections (30 net sections) of Montney petroleum and natural gas rights in its core area of the Alberta Deep Basin.

Primary Petroleum (TSX.V:PIE) has focused a majority of its resources in the acquisition of prospective oil and gas acreage in Montana. It is engaged in exploration and development activities in Montana and Alberta and owns a significant land position in the Alberta Basin Bakken Fairway in Western Montana and in the NW area of the Williston Basin in Eastern Montana. The company holds 100% interest in all of its landholdings in Montana and has been increasing those landholdings.

Centric Energy Corp. (TSX.V:CTE) is another one we like. It is an oil and gas explorer with interests in Kenya and Mali, with a particularly promising land position in Kenya. The Kenyan government recently approved the Block 10BA farmout to Tullow Oil plc (LSE:TLW). The Block is in the northwestern part of Kenya, located in the eastern part of the Tertiary-age East African Rift system and is considered analogous to the Albertine rift in Uganda, where an estimated 1 billion barrels of reserves have been proved to date and contains another 1.5 billion barrels of prospective resources. The Lake Albert Blocks are operated by Tullow Oil, and 35 out of 36 of the exploration wells drilled have been successful.

TER: Most people are staying away from gas plays right now. Are you saying that Pinetree is heading in that direction?

MA: There’s a very strong secular case to be made for natural gas in the sense that it’s a “green” fuel and will be instrumental in helping governments achieve their objectives to reduce carbon emissions. That said, a lot of the so-called gas plays are actually existing byproducts of oil extraction, so there is less price sensitivity to natural gas prices per se. And the new technologies in place have substantially increased extraction techniques, whilst reducing cost. So our focus can’t be on companies on the basis of higher prices, but rather on good, low-cost producers with ample reserves. Those companies can make money at these depressed prices, which are likely to stay low for the foreseeable future.

TER: Do you have some closing remarks on the energy sector on a macro level?

MA: I think what Pinetree Chairman and CEO Sheldon Inwentash says is correct. At the end of the day, you’re dealing with a structural phenomenon where you’ve got 2.5 billion people in India and China and other emerging areas of the world who are rapidly trying to get wealthy like we did using the same sort of growth model. But because these people are at an earlier stage of economic development, the intensity of their commodity usage is much higher. With that in mind, we tend to believe that there’s a structural bull market in any number of commodity classes. Pinetree has effectively constructed a business plan on that thesis. Now, are we likely to see significant corrections in the future? Of course. These things don’t go up in a straight line. You could have vicious 30%–40% falls. We have to learn to live with that volatility. We employ responsible risk-management techniques and do a lot of due diligence and technical work to get the high-quality assets and get them early.

TER: Thank you for talking with us today, Marshall.

As Pinetree Capital’s corporate spokesperson, Marshall Auerback is a member of Pinetree’s board of directors and has some 28 years of global experience in financial markets worldwide. He plays a key role in the formulation and articulation of Pinetree’s investment strategy. Currently, Marshall is a senior fellow at the Roosevelt Institute, a research associate for the Levy Institute and a fellow for the Economists for Peace and Security. He previously served as an advisor to a number of fund-management organizations, such as PIMCO, the world’s largest bond fund management group, RAB Capital and David W. Tice & Associates. He graduated magna cum laude from Queen’s University in 1981 and received a law degree from Corpus Christi College at Oxford University in 1983.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Mega Uranium, Mawson Resources, Energy Fuels and Primary Petroleum.
3) Marshall Auerback: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. See Pinetree Capital’s disclosure policy.

By Addison Wiggin

01/18/11 Baltimore, Maryland – This morning, we see Britain’s consumer price index grew in December to an annualized 3.7%. Fuel prices are growing at their fastest pace since July, and food prices are zooming at a rate last seen in May 2009.

Like the US Federal Reserve, the Bank of England has an inflation “sweet spot” of 2%. But Britain’s CPI has been above 3% for 13 months now. Unlike in the United States, even the “core” rate of inflation in the UK is rising at an alarming 2.9%.

“If history is any guide,” Chris Mayer contends, “inflation will likely get much worse. Everyone seems to know the US inflationary story of the 1970s. The official inflation rate hit nearly 14% by 1980.

“In other countries, it was worse. In the UK, inflation topped out at 27%; in Japan, 30%.

“The year 2011 is the year when inflation will play the role of wrecking ball,” Chris declares.

“Emerging markets have been a vital part of the investment story of the last decade, for sure. Yet rising food and energy prices pose a big risk to them.

“In India, food prices are at their highest levels in more than a year, rising 18%. The dabbawalla, when he is done delivering lunchboxes, trots off to the market and finds that the price of onions has doubled in only a few months. Even the basics, like potatoes, have become expensive to the average Indian.

“In China, the typical Chinese also faces rising prices for nearly everything. The official inflation rate recently hit a 28-month high. But it’s the surging price of coal that may prove to be China’s Achilles’ heel, at least in the short term. Coal is what powers the great boom in China. And coal is at two-year highs.

“The basics like food and energy are like brakes on these economies.”

But that’s not all they will put the brakes on… Here’s an old video of Jim Rogers, Vancouver keynote, saying that given the current reckless spending and printing strategy in Washington, we’ll eventually experience “an inflationary holocaust.” In 4:33 or so is the mark that he gets into the holocaust theme.

Here’s another one from our friend Ron Paul laying into Ben Bernanke a while back. In the 3:43 mark he “goes off” on the Fed chairman explaining how money printing is already hurting retirees.

And for good measure, here’s video of another Vancouver veteran, Nassim Taleb, saying he feels more jittery about a currency crisis now than he did when he left his native Lebanon during a meltdown.

Fact is, once it gets started, inflation is hard to stop. Not that Wall Street bankers or your friendly Washington representatives give a hoot. They’re not the ones who get walloped when money stops buying necessities…and interest rates spiral upward out of control.

Addison Wiggin
for The Daily Reckoning

Read more: When Rising Food and Energy Prices Begin to Wreak Havoc http://dailyreckoning.com/when-rising-food-and-energy-prices-begin-to-wreak-havoc/#ixzz1BRI7p000

The outlook for the U.S. stock market in the New Year figures to be an exasperating mixture of promise and peril. Positive momentum is building going into 2011, but so are dangerous bubbles.

The high-tech, energy, materials and commodities sectors will be hot in the New Year. And the U.S. stock market will get an added boost from the fact that U.S. Treasuries, municipal bonds (munis) and euro-based investments will not.

Here’s what’s in store for the U.S. stock market in 2011.

Three Little Rules

U.S. stock market investors who want to survive and thrive in the New Year would do well to remember three basic rules – each of them born out of the old stock-market adage that “the trend is your friend.”

In 2011, the three rules U.S stock-market investors would do well to remember are:

• The trend is your friend.
• And if that trend has momentum, it will be your best friend.
• But that friendship will only hold until the trend turns on you – at which point it becomes your worst enemy.

The “trend” that we’re referring to here is market liquidity – and lots of it. All this liquidity is washing through the U.S. economy courtesy of the Obama stimulus package, the “quantitative-easing” strategy of the U.S. Federal Reserve, the just-enacted extension of the Bush tax cuts, a cut in payroll taxes, expanded unemployment benefits and accelerated expensing of capital investments in 2011.

A key point to understand about all this liquidity is that “more is always better sooner.” And that’s certainly the case here: We don’t have to wait and worry about getting these simulative measures in 2011 – they’re already in motion.

In this kind of market, fundamentals take a backseat (though they’re not totally irrelevant). Liquidity determines the direction of stocks and other asset prices.

And there could be more liquidity to come.

The Fed’s Plan For a Happy New Year

In a recent appearance on the CBS News “60 Minutes” program, U.S. Federal Reserve Chairman Ben S. Bernanke declared that the already-existing second round of quantitative easing – referred to by the market moniker of “QE2″ – could very well be followed by more of the same.

That’s more fuel for the stock-market fire in the New Year.

Liquidity – in all its forms, and all around the world – has been the engine of rising global prices for stocks, bonds, commodities, and even precious metals such as silver and gold.

Much of this liquidity has been stimulus-fueled. The liquidity then drives markets and asset prices higher because most of it ends up being injected into the very pipelines that supply liquidity.

Here in the U.S. market, this is all part of the Fed’s “real” plan to “save” the economy. That central bank plan calls for the central bank to:

• Liquefy the banks and all the financial intermediaries.
• Inflate the stock market and create a “wealth effect” where people see stock prices rising and assume the economy is getting stronger.
• Inflate commodity prices so deflationary fears don’t destroy consumer spending because shoppers put off purchases, rightly reasoning that prices will be lower later.

In other words, the Fed wants to inflate everything, first by devaluing the dollar, the currency in which oil and most major commodities are priced. Then it plans to continue to devalue the dollar by printing money to make our exports cheap on world markets.

Sure, it’s a “liquidity trap,” and a momentum shift in the flood of liquidity is the greatest danger to rising equity prices. But as long as every crisis is met with another massive dose of liquidity, the levy will keep rising, until it eventually breaks.

Long before that happens, however, I’ll have you out of all your longs and will help you start constructing strategic “shorts.” In fact, I’ll have all of you short everything.

That change in direction is what I mean when I refer to the prevailing trend “turning on you,” and becoming your biggest enemy. That will happen when the liquidity is withdrawn.

In the meantime, there’s money to be made through equity investments in different sectors and across different asset classes (courtesy of exchange-traded funds, or ETFs), by going long on positive momentum plays and by shorting some investments about to get the wind knocked out of their sails.

Let’s look at some specifics.

Tapping Into Technology

The brightest stock-market star in 2011 will be tech. Right now, the hot growth areas in the world don’t include the U.S. market. But that’s okay: A research study of high-tech firms in the Standard & Poor’s 500 Index conducted by top-tier market researcher Bespoke Investment Group found that 54% of the gross revenue recorded in 2009 was derived from international markets.

What is spectacular about tech is that technology combines global growth prospects with every company’s need to improve productivity gains through advanced applicable technologies. That’s everywhere. What’s more, here in the U.S. market, a major corporate tax break for capital investments in technology, factories and other equipment will serve as an added tailwind to drive tech sales – and tech stocks – even higher.

U.S. companies are sitting on nearly $2 trillion in cash – their biggest hoard in 51 years. And tech firms boast some of the biggest caches of cash. As a percentage of total assets, their cash holdings are highest among all S&P 500 industry groups. Whether they use their cash to pay dividends, buy back stock, or embark on merger-and-acquisition deals – all of which we’re already seeing – tech-stock investors figure to be the big beneficiaries.

There are plenty of great tech companies and slices of the tech pie. Personally, my favorite trends are cloud computing and data storage. But, maybe the easiest and broadest approach is the best. I like buying the Nasdaq Composite Index in the form of PowerShares QQQ Trust ETF (Nasdaq: QQQQ).

Put a Charge Into Your Portfolio

Energy – specifically oil, the drillers and integrated multinational giants – is poised to soar in the New Year, especially if the emerging markets stay healthy, Europe stabilizes, and the U.S. recovery hits its stride.

With a modicum of inflationary fear back in the spring and summer of 2008, oil rose to more than $145 per barrel. Given the devaluation of the U.S. dollar and rising commodity prices worldwide, crude oil is almost certain to zoom beyond its current trading range at about $85 to $89 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) has announced a target price of $90 a barrel. Given that oil was trading at $89 yesterday (Tuesday), this looks ridiculously low if demand increases as global economies recover.

ConocoPhillips (NYSE: COP) and Chevron Corp. (NYSE: CVX) are poised to rise handsomely in tandem with the price of oil. So are a few of the drillers, especially the deepwater drillers. Transocean Ltd. (NYSE: RIG), in particular, looks cheap. If the company can escape the worst of the fallout from the Gulf oil spill, it could be a big winner.

Materials, Commodities and Precious Metals Plays

The materials sector is also in good shape to benefit from a U.S. recovery and global growth. S&P 500 materials-based companies derive 45% of their revenue internationally. Rising demand in terms of growing industrial production will put upward pressure on the supply side of materials. I like keeping it simple here and play this big space by buying Materials SPDR ETF (NYSE: XLB).

Commodities investments were once the purview of the high-net-worth investor only. Today, however, every investor needs to have money invested in this crucial sector. We covered oil as part of our energy strategy (and oil, by the way, constitutes a major weighting in most commodities index funds, so be careful not to overweight your portfolio with more “black gold” than you are comfortable with).

Other key commodities groups include agriculture, minerals, livestock and metals (not including precious metals) – of which can be invested in via ETFs.

In agriculture, for example, there is the PowerShares DB Agriculture ETF (NYSE: DBA) and the MarketVectors Agribusiness ETF (NYSE: MOO).

Mostly, I like copper, cocoa, corn and cotton.

For corn, take a look at the Teucrium Corn Fund (NYSE: CORN). If you are an international investor, or have access to the London markets, the ETFS company has a series of ETFs based on the corn futures markets, including the ETFS CORN Fund (LON: CORN.LN).

With cotton, there’s the iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSE: BAL), which is based on the total return sub-index for cotton. It is based on the return of a single futures contract in cotton.

I also like some of the minerals and metals. There are ETFs for palladium [the ETFS Physical Palladium Fund (NYSE: PALL)] and for platinum [the ETFS Physical Platinum Shares (NYSE: PPLT) ETF]. Platinum, by the way, is a metal whose potential we’ve written about extensively in past issues of Money Morning.

The only caveat to loading up on commodities as we enter 2011 is that they’ve had a big run already and while I expect momentum to continue, there’s a big wild card out there (more on that later) and I suggest either buying small and adding to positions later, or waiting until April to see if the Fed is going to keep the “QE” ship sailing at full speed.

Then there are the precious metals. I like gold, just not in over abundance. A 10% allocation to gold is never going to hurt you and it stands to be a steady winner as long as currency wars and a decimated euro bring the “store of value” discussion to Main Street investors. Money Morning has published special reports on silver and gold investing.

Playing the Downside

As I explained earlier, there is a potential downside when the trend is no longer our friend. And there’s also downward momentum, which comes after upward momentum sputters.

Unless we are headed into another global meltdown or experience a devastating shock to financial markets, bonds have had their ride.

Treasury yields have backed up considerably since QE2 began. While the Fed was trying to keep interest rates low by buying Treasuries and flooding the system with liquidity, bond prices actually fell and yields rose – a lot! If the Fed is successful, or in spite of its efforts, U.S. growth gains traction and global demand for investment capital continues, rates have nowhere to go but up.

Over a trillion dollars have been invested in Treasury bonds since the fall of 2008. That safe harbor isn’t going to look so safe when investors open up their fourth quarter statements and see they have losses in their bond holdings. If stocks keep rising and bond prices keep falling, there will be a capital wave out of bonds that just might upend world stability. We’ll cross that bridge if we get there, but to ride the downward momentum in Treasury bonds I recommend buying ProShares Short 20+ Treasury ETF (NYSE: TBF).

Another mind-bending momentum-mayhem possibility is an exodus of investors from the municipal bond market. There’s no escaping the fact that almost all U.S. states are making ends meet by means of federal handouts. County and municipal governments are almost all out of money and deep in hock.

Rising rates will be the canary in the coal mine, signaling a possible default – or, more likely, several high-profile defaults – if the Fed and the U.S. Treasury Department don’t open up the spigot and keep liquidity flowing into the financial system.

If you’re a muni-bond investor, think about hedging or cashing out. The timing on this one will be difficult, but it’s coming. Because timing on the municipal front is so difficult, I’m not inclined to recommend what to short right now. But I will offer an update on this subject, with specific recommendations, later in 2011.

Lastly, there’s the euro, the currency of the European Union. The euro has been weak lately after bouncing to heights that didn’t make any sense after last summer’s Greek debt woes subsided. What didn’t make sense is that the euro climbed even on the heels of news about Ireland. Not until fears arose that Portugal and Spain could be next to need emergency first aid did the euro start to falter again.

The euro has nowhere to go but down. I like buying three-month-out “calls” on the ProShares UltraShort Euro ETF (NYSE: EUO). This fund is a leveraged, double-short ETF that is designed to move twice as much as the cash market for the euro currency against the dollar. That means that if the euro is falling in value relative to the dollar, EUO will rise in price.

Key Caveats

As we head into 2011 with positive momentum, there are some key warning signals that we need to watch for – since they would serve as warnings of a reversal in momentum. These warning signals include:

• Any sovereign defaults anywhere in the world.
• National governments or cross-government unions backing away from debt support and liquidity-supply measures.
• Or any serious banking or financial markets crises in China.

There are plenty of reasons to be optimistic about 2011, and a few mayhem makers that can turn things upside down.

So just remember this: Your friends are only your friends until you can’t trust them any more.

[Editor's Note: Shah Gilani, a retired hedge-fund manager and renowned financial-crisis expert, has made some astounding market calls. Take his forecast for the 2009 U.S. economy. He predicted a steep decline in both the economy and the stock market – followed by a steep rebound in stocks. And that's just what happened.

Not long ago, in a Money Morning exposé, Gilani warned that high-frequency traders (HFT) were artificially pumping up market-volume numbers, meaning stocks were extremely susceptible to a downdraft.

When that downdraft came, Gilani was ready - and so were subscribers to his new advisory service: The Capital Wave Forecast. The next morning, because of that market move, investors were up 186% on a short-term euro play, and more than 300% on a call-option play on the VIX volatility index.

Now Gilani has crafted a stock-market strategy for the New Year. It's worth a look. If you like what you see, take a close look at his Capital Wave Forecast advisory service. You'll find it was time well-spent.]

News and Related Story Links:

• Money Morning News Archive:

  Outlook 2011 Economic Forecasting Series.

• Money Morning Outlook 2011 Economic Forecast Series:

  Bush Tax Cuts: How to Profit From the Compromise Tax Deal In 2011.

• CBS News “60 Minutes” News Magazine:

  Ben Bernanke’s Appearance.

• Money Morning Investment Research:

  Special Report: How to Buy Silver.

• Wikipedia:

  Wealth Effect.

• Money Morning Investment Research:

  Special Report: How to Buy Gold.

• Bespoke Investment Group:

  Official Website.

• Money Morning News Analysis:

  U.S. Companies’ $1.93 Trillion Cash Hoard Biggest in 51 Years

• Money Morning News Archives:

  Cloud Computing.

• OPEC.org:

  Official Website.

• Money Morning News Archive:

  Gulf Oil Spill News Stories.

• Money Morning Investment Research:

  Investing in Cotton: The New “King” of the Commodities Sector.

• WiseGeek.com:

  What Does It Mean to be a “Canary in a Coal Mine?”

• Money Morning Investment Research:

  Three Ways to Profit as Growing Demand and Tight Supplies Send Corn Prices Higher.

• Money Morning Outlook 2011 Economic Forecast Series:

  A Bond Investment Strategy For the New Year.

Shale gas changed everything.

Using hydraulic fracturing (or hydro fracturing) technology, North American gas producers over the past decade have unlocked trillions of cubic feet of new, unconventional gas reserves from shale.

Check out the chart below from a recent study by MIT (Massachusetts Institute of Technology). Both the United States and Canada have seen big jumps in gas reserves due to unconventional resources. The majority of which is shale. In the U.S., this has added nearly a trillion cubic feet (tcf) of resource. In Canada, it’s added about 500 billion cubic feet (bcf). These are huge adds.

Shale has also been a big boost to production. U.S. natural gas (nat gas) output has taken off since 2006 as shale plays like the Haynesville, Marcellus and Eagle Ford have come online. Monthly nat gas output has risen 15%, from about 2 tcf per month to around 2.3 tcf—the first substantial rise in production since the early 1990s.

The Price of Success

Of course, more production means, well, more gas. And even as new supply has come online in the U.S., gas demand remained relatively flat.

One of the major challenges for gas demand has been declining use by the industrial sector. Industrial demand accounts for 30% of ex-plant gas use in the U.S., the second-biggest demand source after electrical power.

And yet industrial gas use is falling. The sector’s gas demand had been declining mildly up until 2005. In 2008, it appeared industrial use might be recovering; but the global financial crisis and recession kicked the sector in the teeth. In 2009, industrial gas use came in at a record low 6.1 tcf—down 25% from the 8.1 tcf used in 2000.

Other sources of demand, such as home heating, have remained relatively steady. One factor keeping gas demand somewhat buoyant has been consumption for electric power. With prices low, gas has become the fuel of choice for power generators.

Total demand for power came in at a record 6.9 trillion cubic feet in 2009. In August 2010, gas demand for power hit 949 billion cubic feet—just slightly below the all-time monthly record of 969 bcf, set in August 2007.

The upshot? Overall demand has struggled to hold firm even as the market has been flooded with new supply from shale.

The Warehouse Problem

The U.S. is struggling to find a home for all its new gas production. In fact, low prices have prompted many producers to store their gas rather than sell it, hoping for better prices down the road.

With producers injecting large amounts of gas into storage, inventories swelled. In 2009, working gas in storage hit a record 3.8 trillion cubic feet—up significantly from the 3.5-bcf storage level that prevailed in the previous three years.

This year the song remains the same. With cold weather in the first months of 2010, America actually managed to draw down most of the record inventory build. But in April, gas began flowing back into storage. Strong demand during the summer air-conditioning season looked like it might dent this year’s inventory growth. But since September, stockpiles have once again been accreting rapidly. In the week ended October 29, working gas in storage again topped 3.8 tcf.

Why All the Drilling?

The new world of gas supply and demand has not been kind to prices. On July 3, 2008, front-month NYMEX natural gas traded at $13.58 per MMBtu. On September 3, 2009—just 14 months later—the price rang in at $2.51. A phenomenal 80% fall.

The onslaught has continued this year. Winter heating demand managed to lift front-month prices as high as $5.50 early in 2010. But the rally was small and short-lived. By October, prices fell back below $3.50.

With over two years of falling prices behind us, many analysts have suggested “low prices should cure low prices.” With producer profits low, gas drillers should simply stop plugging new wells, which would help curb supply and bring the market back into balance. But the fall in drilling hasn’t materialized. Even as gas prices fell through 2010, the U.S. drilling rig count rose by more than 30%. Over the last two months, the count has flattened off but certainly not declined.

Why? A few reasons. . .Some gas producers were foresighted enough to hedge production when prices were high. Many of these were able to sell gas at $8–$10/MMBtu, even as futures prices were running half that. Drill away.

Those hedges are now falling off. But there are other incentives for producers to keep drilling. Leasehold obligations, for example. Acreage in U.S. shale plays has become a hot commodity. Every company wants to bank as much land as possible, as these plays comprise one of the main areas where producers see organic growth over the coming decades.

But holding land often means drilling. Landowners want to see production come online so they can start getting royalty checks. Few people are willing to let a would-be producer sit on acreage waiting for higher prices, which means many producers are drilling without any regard for the gas price. They could be losing money on today’s wells and they would still do it. Winning the land grab is simply too important for the future.

Getting Liquid

Also preventing a falloff in drilling is the fact that gas isn’t the only valuable thing you get from a gas well. Several North American gas plays also produce significant amounts of natural gas liquids (NGLs). NGLs have heavier hydrocarbons that are gaseous in the ground but condense to liquid when brought to the surface.

Nat gas liquids often sell for prices in line with prevailing oil prices. In fact, in places like Alberta, condensate can actually sell at a premium to light oil because the stuff is needed to dilute heavy oil from the oil sands for transport through pipelines.

Because of the value discrepancy, many gas producers have shifted their focus to liquids-rich plays. One of the leading ones is the Eagle Ford Shale of Texas. With Eagle Ford wells producing tens of barrels of liquids per million cubic feet (mcf) of gas, the economics on these wells are favorable even at current gas prices.

Some projections show that Eagle Ford producers could give their gas away for nothing and still make a positive return on shale wells selling the liquids. Across the liquids-rich sections of this play, returns on drilling investment can be as high as 200% at $4 per million British thermal unit (MMBtu) gas, according to Colorado’s Bentek Energy. The break-even gas price for such wells is an astonishing $2.04.

Producers lucky enough to have a liquids kicker are doing fine at current prices. Keep those drills turning.

Move It on Out

So, if North American gas producers are going to keep producing (probably) and domestic demand is going to remain subdued (likely), is there any hope for nat gas prices?

Yes. The rest of the world.

Before the shale gas revolution, everyone assumed America would be a serial importer of gas. The numbers bore this out. U.S. nat gas imports grew rapidly between 1985 and 2000, jumping from 1 tcf–4 tcf per year.

After a brief plateau in the early 2000s, it looked as if imports would continue to rise. By 2005, imports had jumped to 4.3 trillion cubic feet. And in 2007, America bought a record 4.6 trillion cubic feet of foreign gas.

Then everything changed. The combination of rising shale production and anemic demand suddenly put the brake on imports. In 2008, imported gas fell below 4 tcf for the first time since 2003. And in 2009, imports dropped again to 3.75 tcf—the lowest level since 1999.

Suddenly, America had something unthinkable—a surplus of gas. This led some producers and shippers to consider an equally radical solution—exports.

The Oil Link

That’s because not every country on the planet is seeing low gas prices. In fact, in markets like Asia, gas prices have remained relatively buoyant.

Some U.S. producers have been able to take advantage of this arbitrage by sending gas to markets abroad in the form of liquefied natural gas (LNG)—cooled, compressed gas that can be moved by ships.

LNG has been a lucrative business. In August, U.S. companies shipping LNG were getting an average price of $13.19 per MMBtu. Over twice the prevailing NYMEX price of $4.22 during that month. In fact, since late 2008, U.S. LNG export prices have consistently run at least 50% higher than domestic prices.

How come?

One of the major reasons is the oil price. In North America, natural gas prices are set in a stand-alone market where buyers and sellers determine the going price. Not so in many other parts of the world. Places like Asia and Europe still largely use an oil-indexed pricing system for gas. In the simplest schemes, gas is priced as a fixed percentage of the oil price. Under newer systems, gas and oil prices are linked by complex formulas known as S-curves.

The end result: Higher oil prices mean higher gas prices. And with oil having been near $80 per barrel for most of the past year, oil-linked gas prices abroad have been much healthier than North American market-based prices.

Because of this arbitrage, it makes sense for American producers to sell gas overseas rather than at home. In fact, analysts at PFC Energy (a Washington-based market research firm) estimate that at $80 oil, NYMEX prices would have to reach $8 per MMBtu before it would be economically advantageous for producers to sell gas in America rather than abroad.

If You Build It

LNG export sounds like an easy solution for U.S. gas producers. But there’s one problem—America has almost no infrastructure for exports.

Because everyone expected the U.S. to be a major gas importer, most existing LNG facilities in the country are designed to receive nat gas, not ship it out. At the peak in 2007, the U.S. was receiving nearly 100 bcf of gas monthly as LNG imports. By contrast, monthly exports of LNG have never totaled more than 8 bcf.

There simply isn’t the export capacity to ship American gas abroad on any kind of meaningful scale.

This is changing, but slowly. In September, Cheniere Energy Partners L.P. (NYSE.A:CQP) was granted permission by the U.S. Department of Energy to export up to 785 billion cubic feet of LNG yearly from the company’s Sabine Pass LNG Terminal in Louisiana.

Petroleum major Apache Corporation (NYSE:APA) is also trying to construct a LNG export terminal in Kitimat, British Columbia. This facility would ship up to 250 billion cubic feet yearly, sourced from northern British Columbia and Alberta where a number of shale gas plays are also hitting their stride.

Other than that, few new export facilities are on the horizon. Opposition to such projects has been strong from environmental groups and local residents concerned about safety. This has led to long permitting times, slowing the addition of new export capacity.

Over the long run, new facilities will get built, and this represents one of the best hopes for North American producers. Increased exports would help access higher prices, drain off surplus gas and, eventually, bring supply and demand more into balance.

The Benefits of Cheap Gas

Another light for North American producers could be new sources of demand. Last month, Morgan Stanley released a report showing that cheap gas in the U.S. will be a major boost to the petro-chemical industry. Because of prevailing low gas prices, American polyethylene producers will enjoy input costs 50% below their competitors in Europe and Asia as of 2012.

These are big savings. And a major incentive for companies like The Dow Chemical Company (NYSE:DOW) to build new production capacity in America. If the U.S. does become a ‘petro-chemical haven,’ the growing production base would be a major new source of gas demand, helping take some of the slack out of the market.

The other sector that loves cheap gas is utilities. With gas prices falling, power generators have been switching to nat gas wherever they can. In July, gas use for electricity generation hit an all-time high of 923 billion cubic feet. So far in 2010, gas use for electricity has run 4.3 tcf—more than 7% higher than the same periods in 2008 and 2009.

With growing opposition to “dirty” coal-fired power, utilities are already eyeing switches to nat gas. And the attractive U.S. gas price gives them one more reason to do so. This means gas-fired facilities may be the “weapon of choice” for new developments going forward. If so, this sector could also ramp-up demand significantly.

It All Comes Back to Shale

There’s one thing that could throw all of these arguments out the window—shale gas going global.

The shale drilling technology that caused such upheaval in North American gas markets is now being taken on the road.

European shales have been a major focus for producers like Exxon Mobil Corp. (NYSE:XOM). Earlier this year, Halliburton Co. (NYSE:HAL) completed the first-ever hydro fracturing of a shale well in Poland. Companies have also been staking acreage in Germany, Hungary, Romania and the UK.

And Europe isn’t the only frontier for shale. Malaysian state petroleum company Petronas said last month that it is investigating unconventional gas opportunities in Asia. Apache recently announced intentions to drill a shale test in Argentina. And even Saudi Arabia is reportedly interested in trying out shale gas technology on the oil-rich nation’s large shale packages.

Of course, we have few results from any of these programs at this point. And success in new shale gas arenas will come down to more than just geology. It’s also a game of costs.

One of the main reasons shale worked in North America was the services sector. Intense competition among drillers, completion experts and infrastructure builders drove down costs to the point where producers could make money tinkering with new shale plays.

This isn’t the case in many other parts of the world. Shale gas completions are complex, technical tasks. This requires top people running the drills, pumps and mud logs. But getting top people and equipment into new locales is costly. Meaning flow rates have to be that much higher in order to yield positive project economics.

New shale successes, when they do come, will be in places where producers manage to optimize services, quality and costs. This will take time, and it won’t happen everywhere.

But when new plays do stick, the impact on gas markets will be significant. There are trillions of cubic feet of gas in shales globally. This represents a major new source of supply wherever it can be unlocked with technology. Such developments would once again shift the dynamics of the world gas market. Keep watching this space.

Dave Forest is a professional geologist and has worked in the oil/gas, mining and environmental sectors for a decade. He previously managed the energy research division at Casey Research LLC, an American-based firm advising a worldwide client base on investments in the natural resource sector.

Dave writes Pierce Points, a free daily e-letter covering global natural resource trends and is a presenter at investment conferences across North America. He currently serves as chief operating officer of Sunward Resources Ltd., a Notela Group company and much of the research data he employs is derived from Statsweeper.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Casey Energy Opportunities Senior Editor Marin Katusa shares his perspectives and predictions on the direction in which the energy sector is headed—from popular green alternatives like geothermal, run-of-river hydro and natural gas to the oil sector all the way to the less-popular, but very viable, uranium sector. The Energy Report caught up with Marin at the New Orleans Investment Conference for this exclusive interview.

The Energy Report: Marin, one of the things you mentioned here at the New Orleans Investment Conference and at the Casey Conference is that the current focus on gold means a lot less attention for the energy sector. Can you talk about the overlooked energy stocks you have found?

Marin Katusa: Let’s start with the geothermal sector. Two years ago, geothermal was the buzz and hot sector in the junior resource sector. Today, nobody’s talking about it. That’s beautiful and fine by us because now these companies have developed projects and explored at a much lower cost of capital for present investors. But the investors got bored and sold the stocks. Now these companies are 50% cheaper than they were 16–18 months ago, but they have so much more value today than they did 18 months ago.

TER: What’s unique about the geothermal?

MK: Of all the green energies, geothermal is by far the most economic. It makes sense. It works without government subsidies. But, when you include the government subsidies, it’s like taking candy from a baby (or from Obama, not sure which is easier). The government’s providing the construction loan guarantees and refinancing the projects at around 4% debt versus a year ago when companies were doing it at +14%. That’s a big difference on the bottom line for cash flow. You can cheaply buy geothermal companies that actually have positive cash flow. I think it’s the cheapest sector today—period.

TER: One of the downsides of geothermal is it’s a relatively small sector. There aren’t a lot of players in it. What will really take it to the next level?

MK: That’s actually the upside. Because there are so few players and it is so front-CAPEX extensive, consolidation will have to happen to create the size. The key number to get the attention of a big firm, such as MidAmerican Energy Holdings Co. (NASDAQ:MDPWM; OTCBB:MDPWM), which is Warren Buffet’s energy company, is 500 megawatts (MW) of production. Whether it’s Ram Power Corp. (TSX:RPG) taking over Nevada Geothermal Power (TSX.V:NGP), Nevada Geothermal taking over Ram, Nevada taking over Magma Energy Corp. (TSX:MXY), Magma taking over Nevada or a merger between Ram and Magma—there’s going to be consolidation. But the question of who will be the consolidator is still up in the air.

You want to be in the company that’s going to have the largest upside. We put Nevada Geothermal, Ram and Magma as buys because they’re run by excellent people. They’re undervalued compared to a year ago. In January, Nevada Geothermal was over $1. We recently wrote about it trading in the $0.50 range. Now the company’s refinanced its debt and had a recent equity financing in which very smart money like Rick Rule participated in (as did we). It’s producing close to 50 MW now and will be growing production in the very near future; and, better yet, Ormat Technologies Inc. (NYSE:ORA) just bucked up some big money to farm into one of its other projects. A year and a half ago, it wasn’t producing; so it’s so much cheaper today and is a much better company.

TER: We’ve seen some consolidation. Over a year ago, you had Ram and Magma. . .

MK: Ram was created when Polaris Geothermal and Sierra Geothermal Power Corp. merged with Hezy Ram’s private company. Magma is purchasing a lot of the Iceland production and it purchased Soda Lake in Nevada. Consolidation is going to continue.

TER: Why haven’t these consolidator plays seen any market appreciation since the IPOs?

MK: Well, frankly, a lot of upside was already priced into the IPO of those two. We stated very clearly to be patient and wait until the “mojo” and “excitement” of the IPO weakened and both companies hit our buy targets, which they are currently at; both are great buys today. There’s a lot of sex appeal to these companies.

Geothermal is a very difficult business—you have to produce results. It’s not like gold where you can do some geophysics, some trenching, pop a couple of holes and say, “I think I’ve got 5 million ounces of gold here,” then wave your hands and have a +$100 million market-cap company. In geothermal, when you pop in that hole it’s going to cost you US$4–$6 million per well and you know what you have.

Ross Beaty and Ram raised hundreds of millions of dollars and they had all these huge projects with a lot of potential. There was a lot of hype built into the price and a lot of expectations. I told people just to be patient and not buy the stocks. That was a very frustrating period for me because we had subscribers asking, “Why can’t we buy it now?” It’s a funny thing, we got a lot of grief for telling subscribers to “BUY under $X” but it was EXACTLY the right thing to do. So, the price and timing of your purchase are just as important as selecting the right company in which to invest.

I was on a panel with Ross Beaty at a Casey Conference in September 2009 when the stock was about $2.25. Somebody on the panel asked what I thought. My answer was: “Be patient. Buy under $1.50.” Within six months, it got to $1.35. That’s because the big institutions had unrealistic expectations, got bored and, more importantly, didn’t understand the geothermal sector. A lot of mining investors invested in the geothermal sector, but their timeframe was much shorter than that needed for the geothermal sector. Geothermal today is the uranium sector in 2004. Today, gold is hot and the investors took their money and placed it elsewhere. Geothermal is getting no love. Like I said before, we look for undervalued “unloved companies and sectors.” And a patient investor will make a lot of money in a few years by investing today in the geothermal sector.

TER: What are the good buys in geothermal?

MK: Right now, we have three buy recommendations: Nevada Geothermal, Ram Power and Magma.

TER: The big 800-pound gorilla in the geothermal sector is Ormat. Does it fall into the buy category?

MK: No. It has some issues with the regulators right now. It’s a big company that has undergone a management change. I believe you have much more upside owning Magma than you do owning Ormat. But I do believe you will see Ormat involved in the consolidation of, or investment in, other companies’ projects like the one it just announced with Nevada Geothermal, which by the way, is a fantastic deal for Nevada Geothermal shareholders.

TER: Magma and Ram are already consolidation plays, but Nevada Geothermal is not. Does that make Nevada a better opportunity?

MK: If you compare Ram and Nevada, the big difference is that no one expects Ram to be bought out today. Ram doesn’t have enough production. The beauty of Nevada Geothermal is that not only is it going to be growing these projects, but also President and CEO Brian Fairbank and his team are very good and very well respected on the technical front. They built the plant and will increase production on Faulkner. The Blue Mountain Faulkner 1 is the largest plant built in Nevada in more than 20 years and it’s one of the largest plants built in the U.S. over the last 10 years. He will not only increase the production of project, but he has three phases coming.

A lot of people are wondering if Magma, Ormat or Ram will buy the company out. So not only is there near-term growth within the company, but you also have the speculation: “Will it get bought out?” That gives you a double-impact speculation. The “hot” money hasn’t even figured out this play yet, but it will. With Ram, it is just growth. That’s the difference between the two.

TER: You also said that oil is ripe for a correction. Can you explain why you think that?

MK: There’s a lot of speculation in the oil markets. In the summer, we published a research report in the Casey Energy Report, which showed that when the BP spill happened, it took 15% of America’s supply offline. You would have assumed the spot price of oil would’ve corrected upward. What actually happened when all offshore drilling was shut down in the Gulf was the spot price of oil dropped 20%. What does that tell you? The speculators didn’t know what to do, so they just got out. They took the money off the table. There’s a speculation premium in the oil markets right now. However, on the other side, you need to look at how low oil can go. It’s a reflection of the economy and speculation. China will buy up all the oil it can get at US$40/barrel.

TER: Isn’t it more a reflection of supply because you’re hearing all about peak oil?

MK: Yes, there’s the peak oil concept. Look at natural gas. America’s been so successful in unconventional shale gas technology, but that’s just starting to hit Europe. The Middle East hasn’t even started doing unconventional exploration. You’ve got these great, cheap world-class producers that have been producing the same way they did before I was born over 30 years ago that haven’t seen modern American technology. When the American innovation hits the Middle East, you will see a lot more of this supply come online.

TER: To what technology are you referring?

MK: The unconventional shale primarily uses fracking techniques. The hottest thing in Europe right now is the unconventional shale sector. Big funds like the one run by George Soros are investing millions of dollars in the sector—these wells cost more than US$8–$15 million per well. But people are worried because each frack uses 2–5 million gallons of water.

In the old days, when you drilled a well for gas, once you spud—you produce. There’s no way to contain it; you have to sell it. So, you dump it into your pipelines and get the price going at the wellhead. Today with the shale technology, you can frack it and it takes you about two days to complete the well. That way, you know how much gas you have and it’s a new natural storage facility. You don’t have to pump it out. The reservoirs can triple—quadruple if they’re successful.

TER: What’s the timeframe for getting this unconventional technology into Europe and the Middle East?

MK: It’s already starting in Europe. In fact, Casey Research wrote the first research report in the business on the potential of shale gas in Europe. In the Middle East, I think the best potential right now is a company called East West Petroleum Corp. (TSX.V:EW). It has the people, network, connections, experience and knowledge. I haven’t been as excited about a company as I am about East West since Cuadrilla Resources Ltd. (which was the leader in European shale and got bought out) and Copper Mountain Mining Corp. (TSX:CUM) before that.

TER: East West’s property is mostly in the Middle East?

MK: Nope, it has a project in Alberta that is producing. It also has four blocks in Romania in the Pannonian Basin—a very hot area right now. I’m hoping the company gets in early and uses other people’s money (OPM) with the Romanian projects. I’ve met with the management and it intends to joint venture (JV) that out and get someone else to spend more than US$60 million on the project. After that, East West will take a free ride over the next four years.

When we do our due diligence, we always focus on people. If you look at the management team, President and CEO Dr. Greg Renwick spent more than 10 years in the Middle East. That’s where he was an integral part of Centurion, which Dana Gas (ADX:DANA) bought out. I believe that you go where you know what to do and are effective at what you do best. Our big speculation here is that Greg is going to do something big in the Middle East. With people like Herb Dhaliwal and Dr. Marc Bustin on the board, he’s built an amazing team. Dr. Bustin is one of the best minds in the business and probably one of the world’s top experts in the unconventional oil and gas sector. Dr. Bustin was the one who educated me on the potential of the European shale gas sector, and investors can make a lot of money following him. Remember, the best companies are always built by great people.

TER: When we spoke at the Casey Conference in San Diego, you recommended Africa Oil Corp. (TSX.V:AOI) as one of your top picks at under CAD$1. The company was trading in the low $0.80s when you recommended it. You put out a Casey Energy Confidential alert on Africa Oil at CAD$1.05 and told the audience the company was a perfect example of taking the Casey Free Ride. It’s gone up so much in such a short period, but you’re still recommending it. Also, could you explain the Casey Free Ride concept again for our readers who might not be familiar with it.

MK: Sure. Casey’s Free Ride is when returns make you feel you want to take a profit, always take your initial investment out or more if you want. What remains invested is like playing with the house’s money in a casino. At that point, you can’t lose.

And as far as Africa Oil, I went on national TV, in the newspaper and our newsletter saying, “Buy under $1.” It was trading in the $0.80 range and today it hit over $2. In four months, our subscribers had a gain of more than 100%. The people at Africa Oil are amazing and have a pattern of success; perhaps they have different DNA, but it’s in their blood (success, that is). Both Lukas Lundin and Keith Hill are part of our Explorers League. They’ve had success after success; they know what they’re doing.

Then you’ve got Tullow Oil plc (LSE:TLW), which is the largest African oil explorer to come in and farm into its projects. That’s what East West is going to do. You come in early and see what no one else sees. You develop these projects to the point where a major can come in and spend hundreds of millions of dollars on them, and you’ve just conserved your share worth. You haven’t diluted your shareholder. It increases shareholder net worth by doing OPM or the JV model. That is what Africa Oil is doing so successfully, and it’s going higher.

Another example is Stream Oil and Gas (TSX.V:SKO). In one of our publications, we recently told subscribers to take profits on that and we’re at a 500% gain. We did the same thing with Amir Adnani, the CEO of Uranium Energy Corp (NYSE.A:UEC). Our subscribers’ gains were over 1,000% on that specific investment. You have to take some profits off the table. But the story got so good that we just put it as a buy again. Amir Adnani is a name people should definitely watch; it’s in our “Top 10 Under 40 list,” which can be read for free at www.caseyresearch.com.

TER: Is Africa Oil to the point where institutions are coming in yet?

MK: It’s starting to get the institutions in. The company is now attracting the attention of the biggest and smartest institutions in the world of oil exploration.

TER: You also wrote about uranium making a comeback. There are several uranium companies in the booths at this conference. Please tell us about what you’re seeing.

MK: The most recent recommendation in our newsletter was Denison Mines Corp. (TSX:DML; NYSE.A:DNN). We said buy under $1.30. The company popped over $2.30. Most recently, we said to take a Casey Free Ride. We’ve had big success with Hathor Exploration Ltd. (TSX.V:HAT). And Uranium Energy has been a free ride.

Some of the best management teams in uranium are Ted Trueman with Pitchstone Exploration Ltd. (TSX.V:PXP) and Rick Kusmirski with JNR Resources Inc. (TSX.V:JNN). These guys have spent their lives in uranium. But they are not good promoters—they’re good explorers. They will make a discovery; it’s just taking time, but that’s the exploration game.

Uranium is still not loved. It’s unpopular but we’ve had big success with Hathor, which is a free ride. But if I were to buy a uranium company today, it would be the small micro caps like JNR and Pitchstone.

TER: What do you see for JNR, which is still looking for uranium, compared to Hathor and Denison, which are producing?

MK: Hathor’s not producing. Denison has facilities in the Athabasca and in Utah. I see the next near-term producer being Amir Adnani’s Uranium Energy Corp. It’s going to start out producing about 1 million pounds (Mlb.) uranium a year. Within three or four years, it’ll get to 3 Mlb.

Unfortunately, JNR and Pitchstone have uranium but not in large economic numbers. Until they get to the magnitude of Hathor, which found a great discovery, JNR and Pitchstone won’t get that type of promotion or value in their stock. Right now, Pitchstone is trading 2x–3x cash in the $0.36 range.

TER: Another company is Ur-Energy Inc. (NYSE:URG; TSX:URE). When I spoke with the company, I learned that, in the U.S., we’ve burned something like 55 million tons (Mt.) of uranium. We produce only about 12.5 Mt., so a lot of that uranium is being imported.

MK: The year 2013 will be a very important year in the energy world. That is when the HEU Agreement for uranium will be renegotiated. It is also when the government will take another look at the American Recovery and Reinvestment Act for the green energy companies.

The HEU Agreement involves the Russians taking their nuclear warheads, blending them down and converting them into fuel. People forget that the U.S. has 3x the number of warheads as Russia. Will America down blend its own warheads? I don’t know. America doesn’t have the actual physical, logistical infrastructure to do it within the country. Russia has that infrastructure. America would have to send its warheads to Russia to get uranium back. What a funny result of the Cold War. But in all seriousness, I think you’re going to see uranium going sideways. If you’re a long-term investor, start picking up these companies on the cheap because they are cheap right now.

TER: If the U.S. decides to downgrade its nuclear weapons, wouldn’t that drop the bottom out of the uranium price?

MK: It would; but, as I said, the infrastructure is not in place to do so. I’m pretty sure that every American is going to stand up and say, “No, we’re not sending our weapons to Russia to get down blended.”

TER: If we’re importing most of our uranium, is there any distinct investment advantage to investing in U.S. uranium?

MK: Yes, there is. Look at Uranium Energy Corp. When we first recommended the company, it was $0.25. It’s at $4.45 now. That’s a nice win. Why? Because Uranium Energy Corp. is going to be America’s next in-situ recovery (ISR), low-cost producer.

America’s problem is that most of the prior production was conventional hard rock. That costs about US$40–$45 to produce. ISR is unconventional; it’s an unconventional technique. You can do it for under US$30/lb. There’s upside there. You will see a lot more of the word “unconventional,” which means it’s not the standard or “old” way of doing things. Rather, it uses new, more-proven modern techniques and, eventually, the newer unconventional techniques will replace the older ones.

You look at Denison’s White Mesa Mill, and the company can’t really make money at $40/lb. uranium. That’s its cost. What’s saving Denison is the vanadium byproduct—it’s getting quite the upside there. So you’re completely right. You want to invest because companies like Denison and UEC are going to be the cornerstone of American production. But, at US$50/lb., Denison starts making some real money—especially with its vanadium as a sweet kicker.

TER: A theme throughout our discussion is unconventional technology. You mentionedReservoir Capital Corp. (TSX.V:REO), which has run-of-river hydro, the last time we chatted.

MK: That’s not really unconventional; run-of-river hydro has been around for a long time. It’s an old technology—a proven technology. Run-of-river is my second favorite green energy. It’s also economic without government subsidies. The difference between run-of-river and geothermal is that geothermal has a larger baseload. However, run-of-river is a lower upfront cost.

We had a very successful run with three run-of-river companies in our newsletter.Plutonic Power Corp. (TSX:PCC) was a more than 100% gain; Swift Power Corp. got bought out at a nice gain and Reservoir also has been a huge success. We’ve more than doubled our money in Reservoir and recently recommended the company again through our alert service and our newsletter. Reservoir is a run-of-river developer in Serbia with geothermal projects in Bosnia and mining projects in Serbia. The company will likely spin out its mining projects, as well as its geothermal. The big upside for Reservoir Capital will be when it signs its power purchase agreement (PPA). If it can do that within the next six months, you will see a lot of institutional interest in the company.

So what do you invest in? You want to invest in juniors that don’t really have the attention of the big institutions because, when institutions come in, it’ll be like Africa Oil, Copper Mountain or Cuadrilla. These companies will be 4x, 5x, 6x or 7x the value because the institutions come in and want to do a big financing. If that happens, Reservoir will be well north of $1. I could see it doing the next institutional financing north of $1.50 if it can get a good PPA.

TER: How close is Reservoir to a PPA?

MK: I think you’ll see that within the next six months; but, really, I have no idea as these things can take a long time.

TER: What’s the probability that it won’t happen?

MK: These juniors are all high-risk ventures. What is the risk? Well, I think there’s a better chance that it will happen than it won’t.

TER: One of the pieces of advice you give investors is to sell and take a Casey Free Ride. But you also say to play only with money you’re willing to lose. So, what do you put your money in if it’s not in the risk part of your portfolio?

MK: It’s difficult for me to compare myself to someone who doesn’t live, eat and breathe this business the way I do. Outside of my real estate holdings, I have cash. All the rest is in junior resource stocks. I believe that if you invest in companies that don’t yet have the institutional interest but do have great management and people, you will do well. That’s the key. You have to invest with people who’ve done it before and who invest heavily in these companies personally. When you look at the winners like Ross Beaty, Lukas Lundin or Robert Friedland, they are always the largest shareholders in their deals. That’s what winners do. It’s important to follow that formula.

TER: Very good Marin. Thank you for your time.

Investment Analyst Marin Katusa is the senior editor of Casey’s Energy Report, Casey’s Energy Opportunities and Casey’s Energy Confidential. He left a successful teaching career to pursue what has proven an equally successful—and far more lucrative—career analyzing and investing in junior resource companies. With a stock pick record of 19 winners in a row—a 100% success rate last year—Marin’s insightful research has made his subscribers a great deal of money. Using his advanced mathematical skills, he created a diagnostic resource market tool that analyzes and compares hundreds of investment variables. Through his own investments and his work with the Casey team, Marin has established a network of relationships with many of the key players in the junior resource sector in Vancouver. In addition, he is a member of the Vancouver Angel Forum, where he and his colleagues evaluate early seed investment opportunities. Marin also manages a portfolio of international real estate projects.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1.) Karen Roche of The Energy Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2.) The following companies mentioned in the interview are sponsors of The Energy Report or The Gold Report: Ram Power, Nevada Geothermal, Copper Mountain, Uranium Energy Corp and Reservoir Capital.
3.) Marin Katusa: I personally and/or my family own shares of the following companies mentioned in this interview: Copper Mountain, East West Resources, Nevada Geothermal, Reservoir Capital. I personally and/or my family are paid by the following companies: None.

One day does not make a trend, but sometimes early leadership after an event like the November 3rd QE2 announcement holds for the next leg up in asset prices. The early read after the first hour and forty-five minutes in the new QE2 world is bullish. With markets extended and sentiment getting a little on the giddy side, a correction could come at anytime. Given what we know as of the November 3rd close, the odds favor risk assets making higher highs before we turn the page on 2010. If a correction comes, it should represent a buying opportunity. Early leaders include the NASDAQ (QQQQ) and emerging market stocks (EEM).The bottom portion of the chart below shows the relative strength of (a) silver (SLV) vs. gold (GLD), (b) consumer discretionary (XLY) vs. consumer staples (XLP), and (c) “junk” bonds (JNK) vs. Treasuries (TLT). Silver has more industrial uses than gold. Gold has more appeal than silver when times are tough. Silver carried the day on November 3rd relative to gold which is bullish for risk and the economic outlook. Under bullish market, monetary, and economic conditions, we would expect to see more interest in consumer discretionary stocks relative to the more defensive consumer staples. The early read with discretionary vs. staples is also bullish. Similarly, “junk” bonds had more interest from buyers than defensive Treasuries after the QE2 details became known – again pointing toward bullish outcomes. Notice the evidence below has nothing to do with a personal bias or an opinion – it is what it is.

There were some concerns from the November 3rd trading day relative to volume, breadth, resistance, and volatility. Volume was impressive yesterday, but we would like to see better intraday results on November 4th and/or 5th.

Market breadth on the day of the Fed’s QE2 announcement improved into the close, but we would like to see more conviction in the coming days. A day with roughly 70% of stocks advancing would improve the odds of the S&P 500 moving toward 1,230 or 1,250. Trading activity on November 2nd and 3rd helped clear up some short-term concerns about the market, including those related to market breadth. We still need to see more improvement on a few fronts, but the last two days have us moving in the right direction.

As we noted on October 13th in Possible QE Upside Targets, a barrier of resistance stands directly in front of the S&P 500. We believe the market will break through, but the question is pre-correction or post-correction. Longer-term (next few weeks) higher highs are probably in the cards for most risk assets, but we will continue to monitor conditions with an open mind.Another concern which may be moving us closer to a correction is volatility. The currency markets, which have been big drivers of weak-dollar assets such as copper, gold, silver, and emerging market stocks, have seen a significant pick-up in volatility, indicating indecision among market players. While things look good at the moment, just when investors begin to get more confident is typically when we need to be on “correction alert”.

As we described in Quantitative Easing: How Does The Money Get Into The Real Economy?, the global reach of the Fed’s eighteen primary QE dealers will assist the freshly printed U.S. dollars in finding their way into a wide variety of countries and global markets.

One way to monitor the health of a market rally is to monitor the rally’s leadership. As long as the current leaders remain healthy, the market in general is probably healthy as well. The move in tech stocks after the Fed’s Quantitative Easing announcement (QE2) gives an early bullish read on Chairman Bernanke’s plans to print more money.

The most notable reaction to QE2 may have been in TBT, which allows holders to “go short” U.S. Treasuries, meaning TBT makes money when the price of the Treasury EFT (TLT) falls.

Gold has yet to make a new high, but the short duration of the recent correction was impressive from a bullish perspective. The fact gold is lagging silver tells us the economy may be better off than most believe – not strong, but not headed for a double-dip. As we repeatedly stated over the summer, an objective review of the economic data never placed high odds on a GDP double-dip – that could change, but currently the double-dip scenario remains the lower probability outcome.

One advantage to owning agricultural commodities, like corn, is their aggregate gains over the last year have been a little more subdued relative to copper and silver.

Like gold and silver, the U.S. dollar gave us a head-fake looking like it may rally. Dealing in probabilities takes into account you could be wrong. It also allows you to focus on the task at hand (trying to make money) rather than defending a forecast. Flexibility remains key as we head into unchartered QE2 waters.

The dollar should play a role in the next market correction, which may be due to arrive sometime in the next few weeks. Keep an eye on market sentiment, which is currently extended and concerning.

The video below is part six in a six part series on quantitative easing and its possible impact on the markets and your purchasing power. Part six gives an overview of QE investment strategies. The video was recorded a few weeks ago, but the basic concepts still apply. You can access all six parts in the QE series on this quantitative easing page.

The CCM 80-20 Correction Index has firmed in the last two days which indicates the threat of an imminent correction has been reduced (not passed entirely, but reduced). The CCM Bull Market Sustainability Index (BMSI) also remains firmly in bullish territory relative to the longer-term outlook (next few months). We will continue to post frequent updates on Short Takes. We still believe the next correction may be a buying opportunity, but we will have to see how things unfold.Chris Ciovacco
Ciovacco Capital Management

By Bill Bonner

11/01/10 Baltimore, Maryland – “Retirement Disaster Ahead,” says The Wall Street Journal.

Yep. Too many retirees. Too little money.

They’re counting on Social Security. But as we see above, government is going to have a hard time honoring its commitments.

The other thing that is happening is that some basic costs – namely food and energy – are going up, even as the consumer price index stays flat.

Why are food and energy becoming more expensive? Because the foreigners are buying food and energy. And there are a lot of them. Foreigners, that is.

And why is that bad news? Where does that leave the typical US retiree? Without increases in the CPI the US government doesn’t adjust Social Security payments to the upside. Meanwhile, the real cost of being retired – food, fuel…along with everything else – goes up.

Most likely, the strain of trying to support so many retired people will destroy the modern welfare state model. As in Argentina, old folks will find that they don’t get from the government what they were promised. They’ll have to figure out how to make do on their own.

Our advice: don’t grow old. Don’t retire. Don’t get sick. Don’t trust the feds. And don’t sell your gold.

Regards,

Bill Bonner
for The Daily Reckoning

Rising Food and Energy Costs to Add to Retirees’ Problems originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

www.FinancialArticleSummariesToday.com

Global crude oil production has leveled off at 74 million barrels per day.  However, now that economies are recovering, consumption levels are back on the rise and the result will be an inevitable rise in oil prices.
Oil Consumption is Crucial for Economic Growth
Ignoring the rest of the world, the U.S., China and India are expected to increase their daily consumption of oil by almost 10 million barrels per day by 2025. Economic advancement over the last 150 years has been highly correlated with the consumption of oil and other fossil fuels and without this increase in consumption of oil at low prices the world will experience no growth. With such large populations and leverage to energy consumption, however, it is unclear if China and India can live up to their high hopes of leading the world out of the current global economic slump.
What An Increase in Oil Price Means For Global GDP
A $100 increase in the price of oil would cost an additional $3 trillion in direct consumption expenses globally – effectively reducing global GDP by 5.1 percent. While some of this wealth might be transferred to oil exporting nations, this is not a zero sum game. If oil shale or deep water drilling were used to replace current low cost supplies than oil producers would be spending nearly $100 in additional productions costs and realizing none of the financial gains to offset the losses from consuming nations.
Most developing nations that are driving global economic growth are highly dependent on energy consumption. Although the U.S., EU, and Japan consume large amounts of energy, these nations have less leverage to the price of oil in relation to their GDP. If the price of oil were to rise by $100, China would suffer from a direct 6 percent hit to their economy, India would suffer from an 8 percent hit to their economy and Japan, as probably the most economically vulnerable nation in the world, would be even more adversely affected.
What Oil Dependency Means
Another important consideration for countries is their foreign dependency on oil. While Russia has a high level of leverage in oil consumption, it is also a net exporter. As a result, Russian oil supplies are relatively secure. The two most vulnerable nations in the world to an oil shock are Japan and South Korea as they import more than 97 and 98 percent of their oil respectively. Both nations are also highly urbanized with very little arable land. These nations would not survive a halt in global oil trade. The EU, China and India are also highly dependent on oil imports.
Why Extent of Unused Arable Land is Important
South and Central American nations including Brazil and Argentina may have the best chances of coming out ahead as they are energy independent, have lower populations than Asia, and the most unused arable land.
Capacity of arable land is a strong indicator of potential for economic prosperity if energy prices spike because the arable land supports farming and food production.
Conclusion:
Now that the U.S. and Europe are also financially insolvent energy consumers the world is turning to nations such as India and China to drive global growth but their large population and leverage to the price of energy create a situation of great risk.
If peak oil is realized within the next five years then growth prospects in India and China will be reduced drastically and the result will be negative global GDP growth and a reduced standard of living for virtually all nations.
Please Note: Sign up to receive for our FREE weekly “Top 100 Stock Market, Asset Ratio & Economic Indicators in Review”.
Chris Mack is President of Trade Placer (tradeplacer.com) which provides an easy way to buy or sell precious metals and facilitates real-time precious metals trading at the lowest possible price. Mack is a frequent contributor to both www.FinancialArticleSummariesToday.com “A site/sight for sore eyes and inquisitive minds” and www.munKNEE.com “It’s all about MONEY” and can be contacted at info@tradeplacer.com.