Matt Simmons on CNBC

Must watch video of Matt Simmons on CNBC.

Refiner Stocks

Anonymous asks regarding my post about trading, "Are you suggesting it's time to go long on TSO, VLO, SUN, WNR ???"

I'm not taking a position on the refining stocks. If gasoline is underpriced relative to oil, it could just as easily mean that oil is due to correct.

What I did like was the suggestion that "as investors and speculators we must strive for total neutrality on all prices. We shouldn’t care one bit if a price is likely to rise or fall. Instead of wasting effort fretting, all our energy should go into figuring out how to game the trend for profits."

I would go one step further and say that I like to be able to open up the newspaper every day and see headlines that vindicate my trading ideas.

My energy stock positions are primarily: long natural gas trusts and drilling stocks.

Good Point About Trading

In the free markets, if something can’t be produced for a reasonable profit then soon it will no longer be produced. This truism of capitalism even applies to such a capital-intensive industry as oil refining. Refiners will cut back on zero-margin gasoline production, which will reduce gasoline supplies, which will then drive gasoline prices higher to catch up with crude oil. Gas prices have only begun their march higher!

As a consumer, I’m sure this really irritates you. I don’t like it either. But as investors and speculators we must strive for total neutrality on all prices. We shouldn’t care one bit if a price is likely to rise or fall. Instead of wasting effort fretting, all our energy should go into figuring out how to game the trend for profits. The low-gasoline-relative-to-oil anomaly we see today will likely prove to be a great trading opportunity.

There Will Be Water

There Will Be Water

If water is the new oil, T. Boone Pickens is a modern-day John D. Rockefeller. Pickens owns more water than any other individual in the U.S. and is looking to control even more. He hopes to sell the water he already has, some 65 billion gallons a year, to Dallas, transporting it over 250 miles, 11 counties, and about 650 tracts of private property. The electricity generated by an enormous wind farm he is setting up in the Panhandle would also flow along that corridor.

Things I'm Reading Today

• Buffett offered to bet any taker $1 million that over 10 years and after fees, the performance of an S&P index fund would beat 10 hedge funds that any opponent might choose.
• Natural gas is a major feedstock in ammonia production--the hydrogen (H) in ammonia (NH3) comes from natural gas. It is not easy to combine N (N2 gas from the atmosphere) and H to make ammonia, so considerable energy (mostly natural gas) also is consumed. The average natural gas consumption for anhydrous ammonia production is approximately 33.5 million British thermal units (MMBtu) per ton. Therefore, the ammonia production cost is closely tied to the price of natural gas.
• Unemployment rate and recession chart.
• GM Volt may be too expensive and not ready in time.

The World Is Round

This is from Will Soaring Transport Costs Reverse Globalization? by Jeff Rubin and Benjamin Tal at CIBC World Markets Inc.

"The duration of a typical sea voyage from China to North America is four weeks. Including inland costs, shipping a standard 40-foot container from Shanghai to the US eastern seaboard now costs $8,000. In 2000, when oil prices were $20 per barrel, it cost only $3,000 to ship the same container. But at $200 per barrel, it will soon cost $15,000 in transport costs to ship from China to the US eastern seaboard"

"With the cost of trans-oceanic freight surging following the 1973 OPEC shock and into the early 1980s, the share of non-petroleum US imports from Europe and Asia fell by a stunning 6 percentage points in little over a half decade, while the share of imports from the Caribbean and Latin America rose by a comparable amount."

"A surprisingly high percentage of Chinese exports to the US fall in the later category. Furniture apparel, footwear, metal manufacturing, and industrial machinery—all typical Chinese exports, incur relatively high transport costs. And there is already evidence that Chinese exports of freight-intensive goods are already beginning to slow under the pressure of rapidly rising transport costs."

Thursday Links: Silver and Steel

• 600 Years of Silver Prices
• Scroll down to the steel price history in this memo. No wonder asset stripping is taking off.
• Stop the Housing Bailout

NYT: All of Inflation’s Little Parts

Neat graphic in the Saturday New York Times.

Commodity Selloff

I don't know whether it will continue.

Gary North thinks that it might.