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Dallas, TX
February 26, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Dead Oil Wells Are Alive And Well In North Dakota
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What's Hot Today: |
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U.S. stock index futures were pointing to a lower flat
opening on Friday. As has been the case for the last few weeks, the dollar
may hold the key to the direction of stocks.
- GDP 8:30 AM ET
- Chicago PMI 9:45 AM ET
- Consumer Sentiment 9:55 AM ET
- Existing Home Sales 10:00 AM ET
- Farm Prices 3:00 PM ET
News For Thought
Federal Reserve investigates Goldman Sachs with regard to its involvement
with Greece. It had to happen, and it's happening. According to The
New York Times: "the Federal Reserve disclosed it was investigating Goldman
Sachs and other banks that helped the country mask its debts, and investors
grew increasingly leery of lending any more money to a nation flirting
with default."
This may be one of those blood in the streets moments or otherwise, but it is
worth watching. According to the report: "The Fed examination is the first time
American regulators will examine the highly profitable if little-known business
of supplying custom-made financial instruments to strapped countries on the Continent." The
Times added: "Goldman is not the only bank that supplied derivatives designed
to lower deficits. In the late 1990s, JPMorgan Chase helped Italy reduce its
budget gap by swapping currency at a favorable exchange rate. In return, Italy
committed to future payments that were not booked as liabilities."
Madoff family members want a new name. According to The Wall Street Journal: "One
of Bernard Madoff's daughters-in-law says she and her children shouldn't have
to bear the name of the convicted Ponzi-schemer and has filed papers to change
her last name to Morgan."
Rethinking daily aspirin. According to The Wall Street Journal, new information
is accumulating which suggests that "some people who are taking aspirin on a
regular basis should think about stopping. Public-health officials are scaling
back official recommendations for the painkiller to target a narrower group of
patients who are at risk of a heart attack or stroke. The concern is that aspirin's
side effects, which can include bleeding ulcers, might outweigh the potential
benefits when taken by many healthy or older people."
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Dead Oil Wells Are Alive And Well In North Dakota
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An Oil Shale Find In The Continental U.S. Could Have More Oil Than Alaska's Prudhoe Bay
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A well known but often neglected oil shale find in North
Dakota is having its day in the sun, and could be the answer to America's
intermediate and perhaps long term energy needs.
The health care reform debate is grabbing all the headlines. Yet, other areas
where politics and policy meet continue to roll. One of the least talked about
areas of this important junction is energy. Yet, as the cap and trade and "green" movement
has been sidelined, especially due to the controversy surrounding the "science" of
global warming, oil shale has quietly led to a boom for North Dakota.
In 2006, we penned an article titled "The Black Gold Rush." In that article we
noted "Oil wells in Montana, long abandoned and thought to be dry, have been
resurrected, even as new oil fields are being developed. This new oil rush is
a clear sign that supply concerns and sustained high prices have spurred a new
wave of exploration and risk taking." Our conclusion, then as it is now, is that
oil prices have reached a point where oil companies can take the extra risk required
to go out and find oil from areas that were previously too expensive and too
dangerous to approach, either from a logistic or political standpoint.
It looks as if we were correct. According to The Wall Street Journal: "A massive
oil reserve buried two miles underground has put North Dakota at the center of
a revolution in the U.S. oil industry, a shift that has radically altered the
fortunes of this remote area." Indeed, as The Journal points out "The Bakken
Shale deposit has been known and even tapped on occasion for decades. But technological
improvements in the past two years have taken what was once a small, marginally
profitable field and turned it into one of the fastest-growing oil-producing
areas in the U.S."
In fact, if the rate of production in The Bakken continues at the current rate,
it is expected to surpass the production rate for Alaska by the end of the decade.
How big is the Bakken? According to estimates by the U.S. Geological Survey,
it could hold 4.3 billion barrels of recoverable oil, without any advances in
technology. If extraction technology improves, it could be more.
More important, the Bakken find and the related boom have improved the North
Dakota and the regional economy, leading to a 4.3% unemployment rate, less than
half of the current national rate which is just below 10%. North Dakota is also
expected to report state budget surpluses.
According to The Journal: "The impact has been especially notable in the oil-producing
western part of the state, making millionaires of local ranchers who sell access
to oil beneath their properties. Oil-field workers have flooded the western city
of Williston, leaving it with a chronic shortage of hotel rooms and making housing
scarce. In Dickinson, three hours to the south, a labor shortage has the local
McDonald's offering $300 signing bonuses. And here in nearby Killdeer, a town
of 700 people that lies in the heart of oil country, oil workers jockey with
locals for lunchtime tables at the Buckskin Bar & Grill, which serves burgers
made from locally raised buffalo."
Much of what's happened here is a direct result of what the energy industry has
learned from drilling for natural gas in places like Forth Worth, where the Barnett
Shale has changed the supply and demand equation for natural gas. New drilling
techniques, developed and refined in Forth Worth and other natural gas shale
reserves have now been adapted and refined further, making the harvest at the
Bakken much more productive.
Some of the companies involved in the Bakken are Marathon Oil (NYSE: MRO), EOG
Resources (NYSE: EOG) and Continental Resources (NYSE: CLR).
Conclusion
In 2006, we concluded: Peak oil is a reality, since it is clearly defined as
a decline in production. Simultaneously, there is still plenty of oil to be found.
But it is not easy or inexpensive to find and extract. Our long-term caveat has
been that oil companies aren't willing to go look for oil that they can't sell
for a profit. Current prices, somewhere above the $50-$60 price range seem to
be high enough to justify the increased risk of going after oil in otherwise
ignored areas. The yields from these fields were negligible in times of plentiful
supplies. But, now, when geopolitical pressures, and increasingly hostile environments,
such as the high seas during hurricane season are making life difficult for oil
companies, formerly "dry" holes, are looking attractive once again.
In 2010, it's clear that our expectations have been met, and that the conclusions
reached then have held up. Perhaps the lesson to be learned is that if something
makes sense and you can stick with it, eventually it will pan out.
The problem is that the markets are not as patient or as focused as individuals
may sometimes be. That means that there are times when making money in a situation
may require a direct involvement in that particular area. If we had to do it
over again, we might have considered taking a trip to North Dakota and perhaps
buying some land.
What we're trying to say is that you can sometimes make money by working at something
tangible instead of buying stocks. In a time where politics and politicians are
creating a climate of uncertainty, tangible investments make sense.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Goldman Sachs (NYSE: GS) Is Under Investigation By The Federal Reserve
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Goldman Sachs
(NYSE: GS) shares are stuck in neutral as the news cycle
is making investors jittery.
Chart Courtesy of StockCharts.com
Sometimes being clever can hurt you. In the case of Goldman
Sachs, its Midas touch over the last decade is attracting
lots of unwanted attention. Specifically, the company is
now in hot water over the credit and currency swaps that
it engineered for Greece and that now have threatened the
stability of the European Union.
To be sure, this is a very murky situation. At the center of the whole thing
is whether Goldman commited any crimes by setting up the swaps, and whether it
was just investing smartly when it sold the swaps to a Greek bank several years
ago.
Those are questions better left for the legal system and to the Federal Reserve's
investigation to answer. What is clear is that Goldman Sachs is in a down cycle,
as a company, and that its stock is not what it was even a few months ago, as
investors are concerned about what's next for the company.
In our opinion, the real question is whether this is a buying opportunity or
whether the shares are better left alone.
And if you look at the chart, it's not clear just yet whether Goldman shares
are attractive or otherwise. The company continues to do business, and will likely
make money in its upcoming quarters.
Yet, if the Fed's investigation reveals something ultra nasty, there is no telling
what could come next, especially with the heavy populism gripping the country
and Congress. For now, watching Goldman may be better than owning Goldman.
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