Where's the Boom?

The Daily Reckoning – Weekend Edition
May 12-13, 2007
Los Angeles, California
by Kate “Short Fuse” Incontrera

VIEWS FROM THE FUSE: WHERE’S THE BOOM?

This past week was a volatile one for the Dow. After putting another record close on the books on Wednesday (making the tally 21 since Jan. 1), stocks took a beating on Thursday, falling 150 points on weak retail data.

But, never fear: (dunn-duunn-da-da-da!) Bernanke and Greenspan to the rescue. Using the mighty force of Fed-speak, Helicopter Ben and Ol’ Bubbles helped to push the Dow back up. They should really think about using their awesome powers to fight crime.

Now before you start conjuring up images of the two of them in superhero costumes (yikes, Greenspan in spandex), chew on this: Should stocks really be on the rise just because both Bernanke and Greenspan think inflation is the main issue here, not recession?

What about all the hits the U.S. economy has been taking? High energy prices, even before the peak driving season…a lethargic (at best) U.S. dollar, that is facing new lows against just about every major currency…not to mention the damage the housing/subprime debacle is doing nationwide. Yet, investors continue to dump their money on Wall Street, with nary a worry.

Well…not everyone. One concerned reader wrote in a couple days ag

“There has been much media crowing about the stock market hitting new ‘record highs’ in recent days. They are only talking about the antiquated Dow-Jones index, thirty large-caps, not market weighted. If you look at the benchmark S&P 500, it is still just below its early 2000 high of 1527. Over seven years and your not even back to square one.

“The tech-heavy NASDAQ is still down about 50% from March 2000. Pitiful. The U.S. economy is growing at a snail’s pace and the Fed is keeping interest rates high to fight almost nonexistent inflation. Market valuations are about at the historical average.

“Where’s the boom?”

We are reminded of a 1980’s Wendy’s commercial – you know the one:

“It certainly is a BIG bun…

“It certainly is a big, FLUFFY bun…

And then, the immortal line:

“WHERE’S THE BEEF?!”

We couldn’t agree with the elderly actress more. Let’s cut to the chase and stop dancing around all the issues – our economy is at its weakest point in four years. If nothing else, it is a risky time for your portfolio.

Short Fuse
The Daily Reckoning

P.S. If you are concerned about minimizing the risk to your portfolio as the market goes up and down, options can be a very useful risk management tool. And right now, we are offering the second oldest, and most prestigious options service in the country for half-off its regular price. You can try Options Hotline risk free for six months, and if you aren’t satisfied, we will give you a full refund – no questions asked.

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— The Daily Reckoning Book of the Week —

A Maniac Commodity Trader’s Guide to Making a Fortune
by Kevin Kerr

In A Maniac Commodity Trader’s Guide to Making a Fortune, Kerr dispels the common myths and misconceptions about these markets, offering an insider’s view of what he calls “the last bastion of pure capitalism on Earth.” Whether you’re a novice or an experienced trader, Kerr’s down-to-earth, clear-cut guidance will make you more savvy, more confident, and more able to jump right in and grab those profit opportunities that are waiting for you.

Kerr shares the pitfalls and successes of his long career, showing you how to take huge profits from movements in markets you’ve only heard of, but were afraid to trade, and succeed beyond your wildest dreams. Kerr-proudly known to many as “The Maniac Trader”-demystifies the language and ritual of the commodity markets, shows the basics of fundamental analysis, explains how market makers create pricing, and much more. Read this book and you’ll agree that adding commodities to your portfolio is a sure way to capitalize on some of the most rewarding, exciting investment opportunities available today.

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THIS WEEK in THE DAILY RECKONING: Is the Chinese economy overheating? Decide for yourself – see “A Gradual Transition”, below…

What a Sarko Victory Really Means                 05/11/07
by Bill Bonner

“It is always entertaining to watch politicians duke it out in the public arena – no matter what language it’s in. This week, Bill Bonner examines the recent French presidential election, and gives some insight into what the United States has to look forward to in 2008. Read on…”

Six Secrets of a Master Trader                         05/10/07
by Steve Sarnoff

“Speculating and trading options can be a difficult game – one that many assume, requires throwing caution to the wind. But as Steve Sarnoff explains, there are a few proven ideas that can be very helpful along the way, and perhaps shed that awful stereotype of the ‘reckless speculator’. Read on…”

Tell Us Sweet Little Lies                                   05/09/07
by James Howard Kunstler

“People come to believe whatever they must believe when they must believe it. And right now, according to James Kunstler, the American people need to believe that the world is simply awash in energy and prosperity. Read on…”

A Gradual Transition                                         05/08/07
by Puru Saxena
“Is the Chinese economy overheating? Many global investors have been struggling with that question in recent days, but Puru Saxena asserts that China will prove itself as an economic leader over the coming decades.”

Putrid Economics at a Terrible Price                  05/07/07
by The Mogambo Guru

“Need to lose weight? Try the new line of Mogambo Yummy Diet Food (MYDF). You won’t lose any weight, but you can feel confident that your purchase will prove, beyond a doubt, that you are just as stupid as the Fed’s stance on inflation, and that you have helped the Mogambo get rich beyond his wildest dreams. Read on…”

FLOTSAM AND JETSAM: What would the world do without energy? Computer access would be virtually impossible; businesses would shut down – life, as we know it, would come to a standstill. Addison Wiggin explores the options that the U.S. has to make sure an energy crisis of that proportion will never come to light…

The Story of Energy
by Addison Wiggin

Without energy, England never would have had its Industrial Revolution. America wouldn’t be breadbasket to the world. And there would be no tech revolution. No Internet. And no television.

Texas oil barons, industrial tycoons and Arab sheiks all made their fortunes on the back of the world’s power resources. So did carmakers and military contractors, the phone companies and computer companies, Bill Gates and Microsoft. Even Warren Buffett, who does his math with a paper and pencil, makes his money investing in companies that need ready access to power to survive.

Some experts even say that if you cut the average energy consumption per person to 1,600 kilowatts per year, life expectancy is cut in half – to 36.5 years.

With the world population adding 250,000 new people every day…or 1 million new people every four days…even the minimum amount of electricity needed to sustain an exploding population is a heck of a lot of juice. No energy crisis is more critical to a society than one in which the lights go out.

Over 95% of the demand for coal over the next three decades will come from the electricity market. And China and India will be responsible for 70% of that new demand.

That’s great news for the United States. And for China, Australia and Canada, where you’ll find most of the world’s untapped coal reserves. There’s enough coal just in the known reserves to burn – at current rates – for another 300 years.

And all of it is miles away from the volatile Middle East.

In North America alone, we’ve got 254 billion tons of proven coal reserves – more than 25% of the world total (compare that to Saudi Arabia, with 24% of the world’s oil).

But there are a few problems with coal.

One problem is that it doesn’t burn clean. When England was the center of the Industrial Revolution, coal fueled the steam engines. The sky was black with soot. A layer of smog blanketed the streets.

In China, coal fires the power plants. China gets 70% of its electricity from coal-fueled power plants. Since China has lots of coal, it only makes sense.

But having coal isn’t the problem. Burning it is.

With three-quarters of China’s 400,000 megawatts of installed electrical power capacity coming from coal, China’s skies are also turning black with coal smoke. Seven of the world’s ten most polluted cities are in China. Acid rain is a serious problem.

But this isn’t just a problem for the tree-huggers. China needs to keep a steady flow of foreign investment money pouring in. With the pollution problem, it risks losing a lot of that money.

So Chinese and U.S. companies are both making huge leaps with clean-coal technology. It’s coal, but reprocessed in different ways to burn clean. With so much coal in the ground…every breakthrough in clean-coal technology could be worth billions to energy investors.

One of the ways to burn coal cleanly that’s getting a lot of attention is called coal liquefaction, or liquid coal. The coal gets crushed into tiny particles, mixed with hydrogen and certain liquids and comes out as synthetic oil that burns much cleaner than regular coal.

Almost any coal-burning power plant can also burn oil. But liquid coal is also getting a lot of attention for another reason…

Dry coal is hard to transport. You can move it in trucks. You can move it on trains and barges. You can even do it by conveyor belt. But one thing you cannot do is move it through a pipeline.

Most of China’s huge stash of raw coal is in the North. But most of China’s big factories and economic centers are in the South, where there is no coal. And the train system in China can only move a little less than half of all the coal that needs to be shipped!

Even though there’s plenty of coal in the North to burn, the South has to actually import coal from other countries. But once coal can be liquefied cheaply and fed through pipelines that will change.

Right now, the cost of getting a barrel of coal or coal oil ranges between $22 and $28 dollars. That may be a lot more than the Saudis pay to get their oil out of the ground. But with regular oil selling above $50 a barrel – suddenly, liquid coal looks like a bargain!

The Chinese plan to replace 10% of their oil imports with liquid coal by 2013. And it will also have huge advantages for running power plants that Chinese trains and trucks can’t get to as easily or regularly.

Liquid coal has huge appeal outside China, too. Over the last 12 months, energy companies in the United States announced plans to build over $100 billion worth of new coal-fired power plants. And U.S. coal production is about to hit a record 1.2 billion tons…with Peabody Energy Corp., America’s biggest coal producer, promising to double its production by 2010.

Regards,

Addison Wiggin
The Daily Reckoning

P.S. Liquid coal will play a huge role in the future of China, the United States and India. And you could make a fortune on the right investments. Possibly doubling and tripling your returns in very little time. To find out more about the investment possibilities – and pitfalls to be on the lookout for, attend this year’s Agora Financial Investment Symposium. The theme is “Rim of Fire: Crisis & Opportunity in the New Asian Era”, and it takes place in Vancouver, British Columbia July 24-27.