($WTIC) - Page 3 - Mad Hedge Fund Trader

Why I Love/Hate the Oil Companies

The first thing I do when I get up every morning is to curse the oil companies as the blood sucking scourges of modern civilization. I then fall down on my knees and thank God that we have oil companies.

You?ve got to love ExxonMobil (XOM), which constantly trades places with Apple (AAPL) for being the world?s largest company. This is why petroleum engineers are getting $100,000 straight out of college, while English and political science major are going straight on to food stamps.

I recommend (XOM) and other oil majors as part of any long-term portfolio. The price of oil has gone up in my lifetime from $3 a barrel up to $149, and then back down to $107 today. The reasons for the ascent keep growing, from the entry of China into the global trading system, to the rapid growth of the middle class in emerging nations. They?re just not making the stuff anymore, and we can?t wait around for more dinosaurs to get squashed.

Oil companies aren?t in the oil speculation business. As soon as a new supply comes on stream, they hedge off their risk through the futures markets or through long term supply contracts. You can find the prices they hedge at in the back of any annual report.

When oil made its big run a few years ago, I discovered to my amazement that that (XOM) had already sold most of their supplies in the $20 range. However, oil companies do make huge killings on what is already in the pipeline.

Working in the oil patch a decade ago pioneering the ?fracking? process for natural gas, I got to know many people in the industry. I found them to be insular, God fearing people not afraid of hard work. Perhaps this is because the black gold they are pursuing can blow up and kill them at any time. They are also great with numbers, which is why the oil majors are the best managed companies in the world.

They are also huge gamblers. I swallow hard when I see the way these guys through around billions in capital, keeping in mind past disasters, like Dome Petroleum, the Alaskan oil spill, Piper Alpha, and more recently, the ill-fated Macondo well in the Gulf of Mexico. But one failure does not slow them down an iota. The ?wildcatting? origins made this a faith based industry from day one, when praying was the principal determinant of where wells were sunk.

Unfortunately, the oil companies are too good at their job of supply us with a steady and reliable source of energy. They have one of the oldest and most powerful lobbies in Washington, and as a result, the tax code is riddled with favorite treatment of the oil industry. While social security and Medicare are on the chopping block, the industry basks in the glow of $53 billion a year in tax subsidies.

When I first got into the oil business and sat down with a Houston CPA, the tax breaks were so legion that I couldn?t understand why anyone was not in the oil racket. Every wonder why we have had three presidents from Texas over the last 50 years, and are possibly looking at a fourth?

Three words explain it all: the oil depletion allowance, whereby investors can write off the entire cost of a new well in the first year, while the income is spread over the life of the well. This also explains why deep water exploration in the Gulf is far less regulated than California hair dressers.

No surprise then that that the industry has emerged in the cross hairs of the debt ceiling negotiations, under the ?loopholes? category. Not only do the country?s most profitable companies pay almost nothing in taxes, they are one of the largest users of private jets.

It is an old Washington nostrum that when things start heading south on the domestic front, you beat up the oil companies. It?s the industry that everyone loves to hate. Cut off the gasoline supply to an environmentalist, and he will be the one who screams the loudest. This has generated recurring cycles of accusatory congressional investigations, windfall profits taxes, and punitive regulations, the most recent flavor we are now seeing.

But imagine what the world would look like if Exxon and its cohorts were German, Saudi, or heaven forbid, Chinese. I bet we wouldn?t have as much oil as we do today, and it wouldn?t be as cheap. Hate them if you will, but at least these are our oil companies. Try jamming a lump of coal into the gas tank of your Prius and tell me what happens.

Love Them, Hate Them or Both?

August 16, 2013/by Mad Hedge Fund Trader

Why You Should Care About the Iran Rial Collapse

Diary, Newsletter

The Iranian Rial (IRR) has just suffered one of the most cataclysmic crashes in the history of the foreign exchange markets. It is off a mind numbing 90% since the beginning of 2011. One dollar now buys 24,834 Rials. Watch out Zimbabwe!

When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, do you think I talk to all of those generals because I like their snappy uniforms, do you?

The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months, now that the US is openly supplying weapons to the rebels. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head a la Gaddafi. It couldn?t happen to a nicer guy.

The geopolitical implications for the US are enormous.? With Syria gone, Iran will be the last rogue state hostile to the US in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran.

Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The anti-government sentiments that provided the spark never went away and they continue to percolate just under the surface.

At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy iPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires.

When Syria collapses, the Iranian ?street? will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. The new Secretary of State, John Kerry, will stiffened his rhetoric and work tirelessly behind the scenes to bring about the collapse of the Iranian economy.

The oil embargo is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain in this oil producing country. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%.

Iranian banks have been kicked out of the SWIFT international settlements system, a death blow to their trade. That is what the Standard Chartered money laundering scandal last year was all about. Sure, you can sell oil one truckload at a time for cash. Try doing that with 3 million barrels a day of which should fetch $270 million. That?s a lot of Benjamins. Forget the fives and tens.

Let?s see how docile these people remain when the air conditioning quits running because of power shortages. With their currency now worthless, it has become impossible to import anything. This is causing severe shortages of everything under the sun, especially foodstuffs, which in some cases have more than doubled in price in months.

What does the government in Tehran say about all of this? Blame it on the speculators. Sound familiar?

Iran is a rotten piece of fruit ready to fall of its own accord and go splat. The Obama administration is doing everything it can to shake the tree. No military action of any kind is required on America?s part. Think of it as victory on the cheap.

The geopolitical payoff of such an event for the US would be almost incalculable. A successful Iranian revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.

Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming oversupply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic $1.66 trillion tax cut for not just the US, but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%).

Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry?s worst nightmare. Commercial office space in Houston may not do so well either, as imports account for 80% of the oil majors? profits.

At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.

The implications for the financial markets will be enormous. The US will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom.

A collapse in oil imports will cause the US dollar to rocket.? An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the US government gone as a major new borrower, interest rates across the yield curve will fall further.

A peace dividend will also cause US GDP growth to reaccelerate from a tepid 2% rate to a more robust 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food. The Dow will soar to 30,000, the Euro collapses to parity, gold rockets to $3,000 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends in a crash.

Some 1 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak right up these well-trained and motivated. We will enter a new Golden Age, not just at home, but for civilization as a whole.

Wait, you ask, what if Iran develops an atomic bomb and holds the US at bay? Don?t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime and boost their own budget allocations. The head of the miniscule effort they have was assassinated by Israeli intelligence last year (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!). What nuclear infrastructure they have is being decimated by computer viruses as I write this.

If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN?s benefit, and comprise no credible threat.

I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.

If the collapse of Iran was going to lead to a global multi decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, offering no substantial pullbacks for latecomers to get in. That is exactly what they have been doing since mid-November.

Here?s The Next Big Short

Not Worth So Much Today

August 8, 2013/by Mad Hedge Fund Trader

Why We Need Six New Saudi Arabia?s

Diary, Newsletter

I recently spent an evening with Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency in Paris, who had some eye opening things to say about the energy space. The IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top-drawer energy research organization.

World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia?s to fill the gap or prices are going up, possibly a lot. His conservative target has crude at $190 in twenty years. Some 39% of that increase in demand will come from China and 15% from India.

A collapse in investment caused by the financial crisis means that supply can?t recover in time to avoid another price spike. More than 1.5 billion people today don?t have electricity at all, but would love to have it. The best the climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out.

This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels. The total 20-year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion.

Richard, who comes from a long diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn?t pull any punches. I have been a huge fan of the IEA?s data for 35 years. Better use any weakness in oil prices to accumulate long term positions in crude through the futures, the ETF (USO), the offshore drilling companies like Transocean (RIG), and oil and gas plays like ExxonMobil (XOM)? and Occidental Petroleum (OXY). When oil comes back, it will do so with a vengeance.

I?ll Take Another Six Please

July 9, 2013/by Mad Hedge Fund Trader

Why I Love/Hate the Oil Companies

Diary, Newsletter

The first thing I do when I get up every morning is to curse the oil companies as the blood sucking scourges of modern civilization. I then fall down on my knees and thank God that we have oil companies.

This is why petroleum engineers are getting $100,000 straight out of college, while English and political science major are going straight on to food stamps.

I recommend (XOM) and other oil majors as part of any long-term portfolio. In my lifetime, the price of oil has gone up from $3 a barrel up to $149. The reasons for the ascent keep growing, from the entry of China into the global trading system, to the rapid growth of the middle class in emerging nations. They?re just not making the stuff anymore, and we can?t wait around for more dinosaurs to get squashed.

Oil companies aren?t in the oil speculation business. As soon as a new supply comes on stream, they hedge off their risk through the futures markets or through long-term supply contracts. You can find the prices they hedge at in the back of any annual report.

When oil made its big run a few years ago, I discovered to my amazement that that (XOM) had already sold most of their supplies in the $20 range. However, oil companies do make huge killings on what is already in the pipeline.

Working in the oil patch a decade ago pioneering the ?fracking? process for natural gas, I got to know many people in the industry. I found them to be insular, God fearing people not afraid of hard work. Perhaps this is because the black gold they are pursuing can blow up and kill them at any time. They are also great with numbers, which is why the oil majors are the best-managed companies in the world.

They are also huge gamblers. I swallow hard when I see the way these guys through around billions in capital, keeping in mind past disasters, like Dome Petroleum, the Alaskan oil spill, Piper Alpha, and more recently, the ill-fated Macondo well in the Gulf of Mexico. But one failure does not slow them down an iota. The ?wildcatting? origins made this a faith-based industry from day one, when praying was the principal determinant of where wells were sunk.

Unfortunately, the oil companies are too good at their job of supplying us with a steady and reliable source of energy. They have one of the oldest and most powerful lobbies in Washington, and as a result, the tax code is riddled with favorite treatment of the oil industry. While Social Security and Medicare are on the chopping block, the industry basks in the glow of $53 billion a year in tax subsidies.

When I first got into the oil business and sat down with a Houston CPA, the tax breaks were so legion that I couldn?t understand why anyone was not in the oil racket. Every wonder why we have had three presidents from Texas over the last 50 years, and are possibly looking at a fourth (Jeb Bush)?

Three words explain it all: the oil depletion allowance, whereby investors can write off the entire cost of a new well in the first year, while the income is spread over the life of the well. This also explains why deep-water exploration in the Gulf is far less regulated than California hairdressers.

No surprise then that that the industry has emerged in the cross hairs of the debt ceiling negotiations, under the ?loopholes? category. Not only do the country?s most profitable companies pay almost nothing in taxes, they are one of the largest users of private jets.

It is an old Washington nostrum that when things start heading south on the domestic front, you beat up the oil companies. It?s the industry that everyone loves to hate. Cut off the gasoline supply to an environmentalist, and he will be the one who screams the loudest. This has generated recurring cycles of accusatory congressional investigations, windfall profits taxes, and punitive regulations, the most recent flavor we are now seeing.

But imagine what the world would look like if Exxon and its cohorts were German, Saudi, or heaven forbid, Chinese. I bet we wouldn?t have as much oil as we do today, and it wouldn?t be as cheap. Hate them if you will, but at least these are our oil companies. Try jamming a lump of coal into the gas tank of your Prius and tell me what happens.

Love Them, Hate Them or Both?

June 21, 2013/by Mad Hedge Fund Trader

The High Oil Mystery

Newsletter

American oil imports from the Middle East are in free fall, down 35% in two years. They are quickly being replaced by tar sands imports from Canada, which are ballooning to 2 million barrels a day and at all time highs. American energy production is surging, thanks to new finds of natural gas showing up in everyone?s back yard, taking the country rapidly on its way to energy independence.

So why is the price of oil so damn high?

Everywhere you go to seek a shortage, you find a glut. Storage facilities at the Cushing, Oklahoma hub are practically overflowing. The Strategic Petroleum Reserve is close to its 727 million barrel maximum capacity, or 36 days of national consumption.

Traditionally, the beginning of the summer driving season heralded higher crude prices. But gasoline consumption has been sliding for five years, thanks to the widespread adoption of hybrids and electric cars, and the improved mileage of conventional automobiles.

Even the Iranian election results auger poorly for the price of oil. The win by moderate Hassan Rohani, who boasts a doctorate from a Scottish university, promises to ease tensions with the United States over the nuclear issue.

More mysterious is the fact that the price of oil has been levitating in the face of the utter collapse of virtually every other commodity. Dr. Copper is handing out ?F?s? these days, the red metal down 30% this year. Iron ore is close to 50% down from its peak, to the deep distress of many Australians and their beleaguered dollar. Even the barbarous relic is off, gold falling 31% from its high. How come the Chinese economic slowdown is dragging down the price of everything except the one it needs the most?

The US decision to send weapons to Syria is, no doubt, positive for oil prices, but it is only worth a bump for a day. America has also announced joint military maneuvers with Jordan. How much do you want to bet that they accidentally leave their weapons behind?

Iran responded by sending 4,000 troops into the battered country to join Hezbollah from Lebanon, who are already there. Syria is turning into the Spanish Civil War of our age. But as it produces no oil, it shouldn?t materially impact prices.

Looking at speculative long positions held by hedge funds, I find them at multiyear highs. My guess is that investment demand, not consumption, accounts for up to $30 of the current $98 price of black gold.

Maybe we should just write all this off to another instance of prices moving the opposite direction of fundamentals, which has become so common this year. Or perhaps President Obama is right? Is it the work of evil speculators?

How To Get a Price Rise From a Global Glut?

June 18, 2013/by Mad Hedge Fund Trader

US Headed Towards Energy Independence

Newsletter

My inbox was clogged with responses to my recent prediction of US energy independence. This will be the most important change to the global economy for the next 20 years. So I shall go into more depth.

The energy research house, Raymond James, put out an estimate that domestic American oil production (USO) would rise from 5.6 million barrels a day to 9.1 million by 2015. That means its share of total consumption will leap from 28% to 46% of our total 20 million barrels a day habit. These are game changing numbers.

Names like the Eagle Ford, Haynesville, and the Bakken Shale, once obscure references on geological maps, are now a major force in the country?s energy picture. Ten years ago North Dakota was suffering from rampant depopulation. Now, itinerate oil workers must brave -40 degree winter temperatures in their recreational vehicles pursuing their $150,000 a year jobs.

The value of this extra 3.5 million barrels/day works out to $122 billion a year at current prices (3.5 million X 365 X $96). That will drop America?s trade deficit by nearly 25% over the next three years, and almost wipe out our current account surplus. Needless to say, this is a hugely dollar positive development.

These 3.5 million barrels will also offset much of the growth in China?s oil demand for the next three years. Fewer oil exports to the US also vastly expand the standby production capacity of Saudi Arabia.

If you want proof of the impact this will have on the economy, look no further than the coal ETF (KOL), which has been falling relentlessly in a rising market. Power plant conversion from coal to natural gas (UNG) is accelerating at a dramatic pace. Public utilities love ditching all the potential liabilities that come with coal. That leaves China as the remaining buyer, and their economy is slowing.

It all makes the current price of oil at $95 look a little rich. As with the last oil spike four years ago, this one is occurring in the face of a supply glut. Cushing, Oklahoma is awash in Texas tea, and the Strategic Petroleum Reserve stashed away in salt domes in Texas and Louisiana is at its maximum capacity of 727 million barrels. It is concerns about war with Iran, fanned by elections in both countries that have taken prices up from $77 since the fall.

My oil industry friends tell me this fear premium has added $30-$40 to the price of crude. This is why I have been advising readers to sell short oil price spikes to $110. The current run up isn?t going to take us to the $150 high that we saw in the last cycle. It is also why I am keeping oil companies with major onshore domestic assets in my long-term model portfolio, like Exxon Mobile (XOM) and Occidental Petroleum (OXY).

Energy independence is also making a huge contribution to the US jobs picture. According to energy guru, my old friend, Daniel Yergin (you must read his Pulitzer Prize winning book on oil, The Prize), energy has created 1.7 million jobs in the last 5 years, and will double that in the next three. It has also created $60 billion a year in new revenues from taxes and oil leases for the US Treasury. Ironic as it may seem, the job that pushes the headline unemployment rate down to the Fed?s vaunted and magical 6.5% target could be for a roustabout.

Does This Make It 6.5% Yet?

March 27, 2013/by Mad Hedge Fund Trader

Revisiting Cheniere Energy (LNG)

Diary, Newsletter

Occasionally, I so totally knock the ball out of the park that I qualify for a place in the stock picker?s Hall of Fame. That was the case when I put out a recommendation to buy LNG exporter, Cheniere Energy (LNG), a year ago (click here? for Take a Look at Cheniere Energy (LNG).

Since then, the stock has soared an eye popping 85%. The great thing here is that I think the stock is still a buy. An upside target of $30 is a chip shot, and the all time high at $45 is within range. So get a 10%-20% dip in the price, and you might shovel some into your long-term portfolio. I quote below the entire original piece:

?I am constantly asked if there are any ways investors can take advantage of the collapse of the natural gas market, where at $2.34/MMBTU prices are plumbing decade lows. I have recently made good money buying puts on the ETF (UNG), but these are not for the faint of heart. They call this contract the ?widow maker? for a good reason.

You don?t want to touch the gas producing companies, like Chesapeake (CHK) and Devon (DVN), because prices are probably going to stay down for years. Good firms that benefit from the increased volume of gas pumped are few and far between. Unless you are a large consumer of this despised molecule, such as an electric power company or a petrochemical plant, it is tough to find a profitable niche.

However, there is one company that delivers a narrow rifle shot that could do extremely well in coming years, and that is Cheniere Energy (LNG). I first started following (LNG) a decade ago when I was still wildcatting for CH4 in the Texas Barnet Shale.

Back when natural gas was trading at a loft $5/MBTU, Qatar invested $50 billion in in developing its own substantial gas resources. The plan was to liquefy the gas at -256 degrees Fahrenheit in the Middle East, ship it to the US in a fleet of specialized LNG carriers, and have Cheniere convert it back into gas at its Sabine River plant for distribution to an energy hungry US market through the Creole Trail pipeline. It all looked like a great plan, and (LNG) shares traded up to $45.

Then ?fracking? technology came along and blew up the entire model. The discovery of a new 100-year supply of gas under our feet caused gas prices to crash from a post Amaranth peak of $17/MMBTU down to $2/MMBTU. Any plans to import LNG from the other side of the world were rendered utterly worthless. Chenier?s billion-dollar investment in a gasification plant was now worth only so much scrap metal. (LNG) shares plumbed low single digits as the firm flirted with bankruptcy.

Enter China. The Middle Kingdom?s voracious demand for energy in this recovery has caused the price of oil (USO) to soar from a 2008 low of $30 to $110. Despite accounting for an overwhelming share of the world?s new energy purchases, Chinese cities are suffering from brown outs due to power shortages. This is why China is resisting immense American pressure to quit buying Texas tea from Iran.

Enter the arbitrage. While oil has been spiking, gas has been crashing. Gas is now selling at 15% of the cost of oil on an adjusted BTU basis. Another way of saying this is that you can buy oil for $16 a barrel instead of $110. It only takes a second with an abacus to understand the appeal of such a disparity.

Gas also has the additional benefits in that it is much cleaner burning than crude, lacks the sulfur and nitrogen dioxides, and produces half the carbon dioxide. That?s a big deal in Beijing where the air is so thick you can cut it with a knife on a bad day.

Enter the long-term contracts. During the 1960?s and 1970?s Japan entered into huge long term contracts to buy LNG from Australia and Indonesia to feed their own economic miracle of the day. Because very expensive and hard to get, offshore supplies were tapped, the price was set at $16/MBTU. Those contacts are now expiring. Do you think they?ll renew at the old price, or go to Cheniere for the $2 stuff? Gee, let me think about that one for a bit.

Enter Fukushima. The nuclear meltdown last March prompted Japan to shut down 49 of 54 nuclear power plants that accounted for 25% of the country?s electric power generation. The brownouts that followed forced a sweltering summer on millions as the government urged consumers to shut off air conditioners to save juice. Power companies there have been scrambling to obtain conventional energy supplies, and have been a major factor in driving oil up from $75 to $100 since the fall. Cheap gas supplies from the US would meet this demand nicely.

The trigger. Last May, Cheniere got US government permission to export 2.2 billion cubic feet a day for 20 years. That would require it to convert the existing gasification plant to a liquifaction plant, something that can be done with some expensive re-engineering. It has already found several large international buyers to take delivery of the new end product. All that was missing was the money to finish the plant. My hedge fund buddies have been accumulating this stock since October, when it bottomed at $3, expecting an angel investor to appear. But it was one of those ?someday, it might happen? kind of stories better left to long term players.

Then last week, Blackstone jumped in with a beefy $2 billion investment in Cheniere. That will enable them to obtain an additional $3 billion in debt financing needed to finish the first of two export facilities. They are now expected to come online in 2016.

How does Cheniere stack up as an investment? Frankly, it is kind of scary. The market cap is only $2 billion, and it pays no dividend. When the current spate of deals are done, it will have $5 billion in debt. The Stock has just run up from $3 to $17. And these facilities are dangerous to operate. One blew up in Texas in 1937 and killed 300 schoolchildren. As a result, local permits for these are very hard to come by.

But as you can see, a whole host of geopolitical, technology and economic strands tie together in this one company, all of which are positive for the share price. If the story comes true, as Blackstone hopes, then there could be a double or triple in the shares for the patient. To learn more about Cheniere Energy, please click here for their website at http://www.cheniere.com/default.shtml .?

Did Somebody Light a Match?

March 21, 2013/by Mad Hedge Fund Trader

Here Comes the Next Peace Dividend

Diary, Newsletter

When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, you don?t think I talk to all of those generals because I like their snappy uniforms, do you?

The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head. It couldn?t happen to a nicer guy.

The geopolitical implications for the US are enormous.? With Syria gone, Iran will be the last rogue state hostile to the US in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran.

Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface.

At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy IPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires

When Syria collapses, the Iranian ?street? will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. Secretary of State Hillary Clinton has stiffened her rhetoric and worked tirelessly behind the scenes to bring about the collapse of the Iranian economy.

The oil embargo she organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%.? Iranian banks are about to get kicked out of the SWIFT international settlements system, which would be a deathblow to their trade.

Let?s see how docile these people remain when the air conditioning quits running this summer because of power shortages. Iran is a rotten piece of fruit ready to fall of its own accord and go splat. Hillary is doing everything she can to shake the tree. No military action of any kind is required on America?s part.

The geopolitical payoff of such an event for the US would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.

Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic tax $1.43 trillion tax cut for not just the US, but the entire global economy as well (87 million barrels a day X 365 days a year X $90 dollars a barrel X 50%). Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry?s worst nightmare.

At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.

The implications for the financial markets will be enormous. The US will reap a peace dividend as large or larger than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom. A collapse in oil imports will cause the US dollar to rocket.? An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the US government gone as a major new borrower, interest rates across the yield curve will fall further.

A peace dividend will also cause US GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, bonds, commodities, precious metals, and food. The Dow will soar to 20,000, the Euro collapses to parity, gold rockets to $2,300 and ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends.

Some 1.5 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well-trained and motivated people right up. We will enter a new Golden Age, not just at home, but for civilization as a whole.

Wait, you ask, what if Iran develops an atomic bomb and holds the US at bay? Don?t worry. There is no Iranian nuclear device. There is no Iranian nuclear program. The entire concept is an invention of American intelligence agencies as a means to put pressure on the regime. The head of the miniscule effort they have was assassinated by Israeli intelligence two weeks ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!).

If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises we have seen are done for CNN?s benefit, and comprise no credible threat.

I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.

If the collapse of Iran was going to lead to a global multi decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, led by the technology sector and banks, offering no pullbacks for latecomers to get in. That is exactly what they have been doing since mid-December. If you think I?m ?Mad?, just check out the big relative underperformance of oil on the chart below.

Here?s The Next Big Short

March 7, 2013/by Mad Hedge Fund Trader

Why You Should Care About the Iran Rial Collapse

Diary, Newsletter

The Iranian Rial (IRR) has just suffered one of the most cataclysmic crashes in the history of the foreign exchange markets. It is off a mind numbing 75% since the beginning of 2011. One dollar now buys 12,200 Rials. Watch out Zimbabwe!

When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, do you think I talk to all of those generals because I like their snappy uniforms, do you?

The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head a la Gaddafi. It couldn?t happen to a nicer guy.

The geopolitical implications for the US are enormous.? With Syria gone, Iran will be the last rogue state hostile to the US in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran.

Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The anti-government sentiments that provided the spark never went away and they continue to percolate just under the surface.

At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy IPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires.