The Rude Awakening
Wall Street, New York
Friday, October 20, 2006 ------------------------- - Searching for a cleaner answer to a dirty energy
crisis,
- Cashing in on corn and O.J. – A report straight from
the trading floor,
- Travel weary arms, the companies that will save
America and plenty more...
------------------------- Wearing weary arms, Joel Bowman reports from a magnificent
Southern Californian Friday morning... One cab, one Subway, a New Jersey train, an AirTran, a
plane ride and a Fry Airport shuttle later and we are here
in California to deliver you a slightly belated Rude. No
quirky stories today, just a very important word on oil
from Rude favorites, Justice Litle and Kevin Kerr. Details
below... --- Trading Special ---
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By Justice Litle Don't unload your oil stocks just yet!
A few months ago we posed the question "Does Peak Oil
Matter?" In other words, has global oil production actually
peaked? And if so, how should investors respond. We posed
this question in the context of the fact that North America
oil shale holds billions of barrels of "theoretically"
recoverable oil. Theoretically, therefore, global oil
production may not have peaked. 
We are skeptical.
We doubt that U.S. oil shale deposits will be yielding
their bounty anytime soon. There are just too many
impediments – logistical, political and environmental - to
make that happen in the near future. 
But what about the Athabasca region of Canada? America's
northern neighbor has Saudi-sized reserves in the form of
oil sands. These oil sands are already producing one
million barrels per day. The "Peak Oil" skeptics place a
great deal of hope on nontraditional sources like
Athabasca. The most hopeful estimates suggest Canada's oil
sands output will eventually hit 10 million barrels a day.
But how to get there from here...
Ah, there's the rub.
One of the biggest inputs in the oil sands recovery process
is natural gas. To get oil out, you have to put natural gas
in. LOTS of natural gas. In a fascinating piece from
CNNMoney entitled "Curing Oil Sands Fever," energy
economist Peter Tertzakian observes that "It takes the
equivalent of 0.7 barrels of oil to create one barrel of
oil sands product."
Tertzakian's equation refers to "energy equivalents." In
the process of extracting and refining the oil sands to
make light sweet crude, other forms of energy get used up.
And unfortunately, much of what gets used up is clean-
burning natural gas.
"What bugs me about oil sands," says Marlo Raynolds,
executive director of the Pembina Institute, an
environmental research group based in Calgary, "is that it
is a resource that is being inefficiently used. We're using
natural gas, which is the cleanest fossil fuel, to wash
sand and make a dirtier fuel. It's like using caviar to
make fake crab meat." The process also requires huge amounts of water. You've no
doubt heard about the water crisis. My friend and colleague
Chris Mayer has written a lot about it (and made good money
for his readers with it). Well, guess what: If oil sands
are the answer, then the North American water crisis is
about to get a lot worse. Athabaska cannot ramp up its oil
sands production without encountering formidable water
challenges.
But let's go back to natural gas for a second. In order to
really ramp up oil sands production, Canada will eventually
have to become a net IMPORTER of natural gas. Think about
that. Natural gas is another area in which the energy
optimists really have their "heads in the sand," pun
intended. North American natural gas wells are already in pronounced
decline. If we hope to solve our oil crisis by ramping up
oil sands production tenfold, we're only going to increase
the burn rate of natgas dramatically. Our reliable
suppliers will become our competitors.
The bottom line is that it takes energy to make energy...
and solving our oil headaches by way of oil sands is only
going to create new headaches. Demand for natural gas is
slowly and steadily increasing not just in the United
States, but elsewhere around the world, and energy-
intensive operations like Canada's oil sands will only
magnify that effect.
It takes energy to make energy... remember that phrase. It
could potentially make you a lot of money over the next
decade. We are on the crest of a great wave here, folks.
The best is yet to come. Don't sell your oil stocks just
yet.
[Eric's Note: Kevin Kerr, Justice's partner in crime at
Outstanding Investments, agrees wholeheartedly that global
oil production is peaking. He also shares Justice's
skepticism that American oil shale will provide large-scale
oil production any time soon. But that doesn't mean that
small-scale oil shale production won't pop up in various
parts of the world, like Estonia for example. In the latest
issue of Outstanding Investments, Kevin discusses the re-
birth of oil shale production in the Baltic region, and
mentions one speculative, micro-cap company that is vying
to become a major player in the region. In other words, Kevin is one of those rare investors who is
capable of seeing both the forest AND the trees. His
seasoned investment acumen serves him very well in the
commodity markets, where he recommends option trades on
behalf of Resource Trader Alert subscribers. Just this
week, Kevin closed out a winning trade on corn options...as
well as a blockbuster trade on orange juice options. Kevin
retains high hopes for both of these markets, but urged his
subscribers to pull some of their money off the table,
nonetheless. One week ago, Kevin fired off the following alert to his
subscribers: URGENT OJ TRADING ALERT Juice Is On the Loose! Action to take: FIRST, call your commodity options broker
and say: "I have two orders for you. First, I want to sell
all of my December corn (CZ6) 310 calls at 14 ½ or better,
good till cancelled (GTC)" Second, "I want to sell HALF of
my January orange juice (OJF7) 175 calls at 18.00 or
better, good till cancelled (GTC)" Dear RTA Readers: Greetings from cold "Minne-snow-ta". Minneapolis is a
lovely town even after all these years it still feels like
home especially as we flew in and the pilot said it was 22
degrees farenheit (-2 c) outside and yup...it's snowing. Little early for snow in my book but it's all good. I was
so happy to see not only juice but also corn skyrocket
yesterday as I boarded the plane, that nothing could have
made me cold, I was too hot! Anyway, no time to waste to
this morning we want to lock in some profits. Now I know many, many of you have already sold some of your
juice and corn, that's great. Many of you have written me
and you bought more corn at the low and or added to the
original position, excellent. It's time to pare down some
of those gains and grab some nice profits. Corn is likely
to continue much higher, but since we have a long-term play
in it we are covered and may end up adding more corn for
March or next summer, time will tell. For now our December
options have time working against them so better to grab
all the profits on any 2006 corn positions and call it a
day so we can focus on trades with more time value. Now Juice. WOW! Is all I can say but I won't say, "I told
you so", ok yes I will I TOLD YOU SO!!!! Smallest crop
in 17 years need I say more. Still nothing wrong with over
100% profits so we want to grab them on HALF of this
position then hold half for another move higher which is
very likely.
Look, the crop isn't going to get any better and if a hard
freeze moves in it could make matters worse. So let me be
clear, here are my recommendations this morning. A. If you have corn calls for December grab profits, this
market is moving fast so use my price as a guideline but
work with your broker and they can help you. B. Take profits on HALF of your OJ calls and hold the rest
for further profits So here is what to d Action to take: FIRST, call your commodity options broker
and say: "I have two orders for you. First, I want to sell
all of my December corn (CZ6) 310 calls at 14 ½ or better,
good till cancelled (GTC)" Second, "I want to sell HALF of
my January orange juice (OJF7) 175 calls at 18.00 or
better, good till cancelled (GTC)" Remember, only sell half of your juice position and let the
rest ride a bit and corn try to grab as much profits as you
can then we can focus on new trades... Stay tuned. [Joel's note: Options on futures aren't for everybody. But
with Kevin's guidance, options on futures can produce very
handsome profits...while also limiting the risk. Check out
what one of his happy readers had to say after this
alert... Hello Kevin,
Wow, what a turnaround and some results!!!
I was never able to get in to the OJ trade when first
recommended. I've kept my eye on it and purchased two Jan
07 170 calls for $6.80 last Friday 10/6. I then watched it
drop to $4.95. On today's news, 10/12, I sold both my
contracts at $18.50. Yes, that is fun!!
Second, I purchased 3 Dec 310 Corn calls for $14 back in
May 06 and 3 Dec 310 Corn calls for $10 in June 06. When
corn surged today, I took 3 contracts off the table at $14
and held on to the other three. I did this because I
watched the expired Oct Sugar contracts surge and then fall
to zero and felt that with just a matter of weeks left, why
not get some basis out and let some other profits run. I'll
keep an eye on the rest and see what you recommend.
Thank you for all the great recommendations and keep up the
great work.
Most importantly, with only a few weeks until the little
treasure arrives, spend as much time with your wife one-on-
one. You will be trying to remember what that time was like
and you will treasure these last times before the new one
joins you for so much more new fun.
Have a Great Day,
Jeffrey B. Goldman, CFP
If you'd like to learn how to join Kevin's happy troop of
winners, click here:
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