Why “Energy Rebalancing” Means Huge Profits This Year

by Dr. Kent Moors 

Marina and I have a little less than a week left on the island before we head back to the mainland. I hope our pipes haven’t frozen back in Pittsburgh!

As we head home to begin the New Year, there are several new wrinkles in the energy market that I have my eye on.
And as always, I’m looking for new ways to profit from them.
These new wrinkles revolve around what I call the “energy balance” – and its changing fast.
It involves big shifts in sourcing and systems that will combine with some major revisions in finance that will alter the landscape for investors.
It’s not about new energy breakthroughs or big oil discoveries. And it’s certainly not about entirely new structures.
Rather, it’s about the accelerating changes in elements you’re familiar with.
Think of it, if you will, as a “rebalancing” of what already exists.
It’s an unstoppable trend that promises to hand us huge profits…

The 2014 Plan: Leveraging a Gigantic Advantage

For us, of course, this “rebalancing” gives us a gigantic advantage: we identified this trend a long time ago. In fact, I’ve discussed it in these pages before.
At present, there are three overarching dimensions to these changes: the energy network itself, the geographical considerations, and the financial arrangements.
As as the market rebalances, it will require we change our investment strategy to profit from it -especially the with first two.
As for the third, we have just about single-handedly revised the approach to finance all by ourselves.
Today, however, I want to talk about the networking dimension.

Networking involves the entire sequence of energy (oil, natural gas, electricity) transmission from production, through gathering and transit, to refining, distribution and retail. This remains the upstream-midstream-downstream sequence that has become a mainstay of the energy sector.
In the case of operating companies, our target interests will consider the basins worked, the company’s focus, market cap and field size, along with the more or less traditional considerations of management style, balance sheet, and market position.
We will also see some interesting rebalancing in the refinery space, as those processors able to bridge the domestic market and rising oil product exports, as well as the conventional/unconventional sourcing mix, will have a substantial advantage.
And then there are the huge transport revisions that are on the way. We have talked about two of these primary developments before, but will be watching their progress with added interest this year.

Fundamental Changes = Big Opportunities

The first is the fundamental change in the worldwide balance occasioned by the rapid expansion of the liquefied natural gas (LNG) market.
This remains the single most significant revision globally to take place over the next decade. The rise of LNG exports from the U.S., fueled by the largess of shale and other unconventional gas sources, will be fundamental to this revolution.
On the other hand, there is another revision that may be just as significant in generating investor profits from the export trade.
I’m referring to crude oil, but with some new elements contributing to another change in the balance. I’m talking about oil exports.
In the future, we will see a concerted move to export oil in new directions – starting with transit from the U.S. For some time, exporting oil from the states has been considered a national security issue, making the trade very difficult.
In this case, two exceptions have been allowed: one permitting the export of heavy, lower quality crude from California (for which the argument can be made of an insufficient domestic demand); the other allowing certain tolling contracts.
Tolling is a process whereby raw materials are exported to be processed abroad with the finished product then imported back in. The justification for this allowance has been the concern over maintaining sufficient domestic stock of oil products, especially diesel. That concern has now abated with the advent of significant reserves of tight oil (“shale” oil actually being only one category of such unconventional sourcing).
None of this would have been considered possible only a few years ago. Being dependent on imported oil, American policy makers were understandably dismissive about allowing the export of finished products from U.S. refineries.
But not any longer…
As is the case with natural gas and LNG, there is now ample local supply. That opens up the market for rising oil product exports.
As a result, I suspect that tolling will rise again – owing to the limitations on overall U.S. refinery capacity – but will increasingly service a jump in the exports of those products. The cost differential in utilizing foreign processing facilities makes this approach quite profitable.

The Big (And Profitable) Global Changes Ahead

Then there is the expanded use of the completed East Siberia-Pacific Ocean (ESPO) pipeline in Russia.
An earlier spur from ESPO has for several years moved oil south to China. But the new impact of the pipeline on wider Asian demand will become far more pronounced.
ESPO export oil will become a new benchmark crude rate, a major development for all of Asia. As this develops, the ESPO benchmark will replace London’s Brent as the standard for trade in wide portions of that market.
This is what makes this so significant. End users in Asia have paid a premium over what it costs to buy the same quality oil for delivery to Europe. ESPO will undercut that tradeoff and provide a genuine boost to Asian economic development. ESPO oil has a lower sulfur content as well meaning it is “sweeter” than Saudi export. That is another big advantage for Asia.
Other export changes will come from a number of geographic market-specific revisions. Western Europe will be importing more LNG as nations like Germany also phase in a wider usage of renewables.
These LNG imports will add pressure on the pricing points for long-term pipelined gas contracts, while improving prospects for investments in the expanded liquefied trade.
What’s more, a matter I have addressed before and had meetings about over the last several weeks, has begun to change how people view oil and gas sourcing in the Caribbean.
It involves the emergence of China as a major conduit of energy funding in South America and the rapidly accelerating networking of production, refining, and transport throughout northern South America and the Caribbean basin.
The combination rising Chinese influence and an existing system called “Petrocaribe” will produce some major changes that will impact North American markets. 

Thomas Edison's secret war with the Federal Reserve decades back has led to a new currency rising up today. It threatens the dollar, EURO, Pound, and the entire international monetary system. But it's also making everyday Americans rich. A Silicon Valley venture capital veteran investigates this exciting phenomenon.

End Of America : Fed is Dying

America’s path from fiscal improbity to political impasse 
ONCE a stalwart of good governance, America looks like a rodeo clown. If the House and Senate cannot agree to continue funding for discretionary spending by midnight on September 30th, the federal government will experience one of its periodic shutdowns. There have been 10 such episodes since 1981, the date of the first one under the current budget-making rules, so a brief hiatus in government functions need not be frightening. Some non-essential services would be suspended and inconvenience caused—in addition to sending the US Treasury market into mild gyrations. Far worse is the idea that Congress might fail to authorise the raising of the debt ceiling in mid-October. Republicans in Congress have a shopping list of demands in exchange for allowing this; the president has said he will not negotiate. If America were in real danger of missing a debt payment it is likely that President Obama would find some constitutional justification for ignoring Congress rather than set off a financial meltdown.
Read full article here
Further Reading

Government Shutdown Begins As Deadlocked Congress Flails

Greetings… from Athens

by Kent Moors Ph.D.

For me, this is where my professorial life started.

Decades ago – before oil became my life – I was actually a specialist in classical Greek political philosophy. I told my students it was a result of the Vietnam War… I didn't trust anybody born after Aristotle!

As a student myself, I lived here in Greece for a bit, although I was too young (and too poor) to appreciate it. I had not been back for over 40 years – until today.

Much has changed in Athens, although not everything. These taxi drivers remain among the most irritable in the world… toward passenger and pedestrian alike.

Yet, these days, the city of the Acropolis, Plato's Academy, ouzo, moussaka and the bouzouki is known for something other than the riots (which our driver had to pick his way through to get to the hotel).

Athens is mired in the mother of all debt crises – one that is threatening the entire Eurozone.

That crisis underscores everything in this city, from the cost of a hotel room to the way in which Greeks measure foreigners.

The debt is actually one of the reasons for my arrival here early this morning.

How Greek's Debt Crisis Affects the Oil Sector

On Monday (June 20), I am set to address an international conference on the subject of oil volatility and the limits of government action.

Most of the rest of my time, however, will be spent discussing the debt crisis, its impact on volatility, and resulting oil prices. There is a consensus on the seriousness of the debt problem, but a wide range of opinions across Europe on what it means for the oil trade.

Greece sees the oil effect first-hand, but from a number of vantage points.

One is the rising retail prices for oil products – a result of the country having refinery capacity but little in the way of domestic crude sources. Even what is refined, however, is more attractive as export, especially in the current financial malaise.

That has required the government to step in to guarantee sufficient volume for the local market. And nobody likes the way it has been done…

Refiners complain that it is hurting profits, while traders bemoan their ability to hedge in a broader regional market.

The average guy on the street doesn't like it because the price is still too high. Besides, following austerity moves enacted over bitter public opposition, he just flat-out hates anything the government does anyway.

Then there is the perspective provided by imports.

The country is dependent on bringing in essential crude from other countries. That is becoming more difficult to do as the Greek credit rating heads south. It is also of concern to plans calling for necessary new pipelines into the country (for the needed oil), as well as crossing the country (for just-as-needed revenues from throughput fees).

Greece has also been a hub for oil tanker traffic, although more of that currently is moving to the Greek side of Cyprus.

Unfortunately, the sector that brought the world such figures as Aristotle Onassis, John Latsis, and Constantinos Alexander-Goulandris is suffering through an outright depression.

The shipping traffic coming through the port of Piraeus has declined significantly, adding to the economic problems.

But it is actually the connection between the volatility in oil trading (something we have talked about here often) and the weight of debt that holds the greatest key to what will happen next in Europe.

On this score, Greece is in the center of the storm.

It's More Than A Simple Credit Constriction

The only reason the price of oil is not higher is because of the euro problems.

The weakness of the dollar against the euro – combined with the denomination of oil transactions in dollars – had provided a premium to the euro-based oil transit and retail trade in the European market.

In short, Europe has been profiting from two spreads:

• One was the spread of European actual prices for crude against the lower pricing in New York.
• The second was the spread between the cost of crude (in dollars) and the cost of retail oil products (sold in euros). This would be even more pronounced if the euro was not currently under such pressure.

However, pricing in Europe still reflects what is really happening in the oil market, unlike the pricing in New York. While NYMEX prices have been declining for its benchmark crude rate West Texas Intermediate (WTI), the London rate for Dated Brent has been increasing. That spread has exceeded $20 a barrel – a historic high.

European prices are also signaling conditions in other regions, since Brent is used as the benchmark rate around the world far more than WTI.

All of this means that, for oil prices, the euro debt crisis is more than just a credit constriction. It adds to already-existing volatility in the trading cycles for crude oil futures, distorting the price and accentuating that instability.

Make no mistake… I expect these talks in Athens over the next week on the relationship between oil volatility and crushing debt to provide some advance warning on what is likely to hit in the U.S. oil market shortly.

The decisive matter is whether a consensus is forming in Europe on how to deal with the connection.

I'll certainly keep you in the loop.

Meanwhile, I also plan to bring my wife Marina to one of my favorite Greek spots – Delphi – to see the temple of Apollo's famous oracle. Never hurts to get the gods involved in repairing what governments usually manage to screw up…

Sincerely,

Kent

Market Preview

Forex Overnight: EUR is trading marginally lower
The EUR is trading lower against the USD this morning, after Jean-Claude Juncker, Luxembourg Prime Minister, indicated that a bailout for Greece must include “voluntary” investor participation.
The JPY is trading 0.3% lower against the USD, amid market speculation that the Bank of Japan will introduce additional stimulus measures to boost economic growth. Additionally, a report this morning showed that Japan’s machinery orders unexpectedly fell in April.
At 6am, the EUR is trading 0.1% lower against the USD at $1.4341, while the GBP is trading slightly higher against the USD at $1.6230. The EUR is trading 0.1% lower against the GBP at £0.8837.
The AUD is trading marginally higher against the USD.

UK Stocks: Likely to open flat
UK markets are likely to open flat, with the FTSE 100 expected to open 3 points lower to 5 points higher.
Latchways, Majestic Wine, Advanced Computer Software Group, British Smaller Companies, and Blavod Wines & Spirits are scheduled to report their results later today.
The Sunday Times has reported that Glencore is considering a takeover bid for ENRC worth about £12.0 billion.
The Sunday Telegraph has reported that Lloyds Banking Group is planning to cut 15,000 jobs as part of its £1.0 billion cost-saving plan.
Taiwan authorities have ordered GlaxoSmithKline to recall two antibiotic products, as an industrial plasticiser was found in samples of the medicines used for the treatment of bacterial infections.
According to the Financial Times, the Chief Executive Officer of Unilever, Paul Polman, has confirmed that the company would not require acquisitions to meet its target of doubling revenues.

Asia: Trading lower
Asian markets are trading lower this morning.
In Japan, Toyota Motor is trading lower, after the company projected a wider-than-anticipated decline in its full year profit. Tyres and other rubber products manufacturers, Bridgestone, Sumitomo Rubber Industries and Yokohama Rubber Company have retreated. Tokyo Electric Power Company is trading lower, on news that the seawater taken near the leaking plant has radioactive strontium level of about 240 times the legal limit. At 6 am, the Nikkei is trading 0.8% lower at 9,434.9.
In South Korea, Hynix Semiconductor is trading higher, amid news that LG Group was interested in buying a 15.0% stake in the company. In Hong Kong, Citic Pacific, Sino Land, Cosco Pacific and China Resources Land are trading lower. In China, ICBC, China Construction Bank and Agricultural Bank of China are trading lower, after a report indicated that new loans dropped in May, compared to the previous month. Chongqing Changan Automobile is trading lower, after the company reported an annual drop in its vehicle sales in May.

US Stocks: Futures trading flat
The S&P 500 Index futures is trading flat at 6am.
In corporate releases, Majesco Entertainment Company, Crown Crafts, IDT Corporation, Quanex Building Products Corporation, Pure Bioscience and Motorcar Parts of America would announce their results today.
In after hours trading on Friday, Ness Technologies surged 11.2%, after it indicated that it has agreed to be acquired by an affiliate of Citi Venture Capital International, for about $307.0 million. Gilead Sciences lost 2.1%, after it stated that it has received a subpoena from the US Justice Department, requesting documents related to the manufacture, quality and distribution practices for several drugs, including Atripla, Emtriva, Hepsera, Letairis, Truvada and Viread.
The S&P 500 index dropped 1.4% on Friday, as concerns persisted over the state of the global economy. Good Year Tire & Rubber slumped 6.7%, amid fears of demand slowdown in the replacement market for tyres. Banks, Goldman Sachs, Bank of America, and Morgan Stanley advanced 1.8%, 1.4%, and 0.8%, respectively, amid reports that international regulators are considering toning down proposed capital rules for large banks. Other financial sector stocks traded weak, with Janus Capital, E*Trade Financial, Genworth Financial, BlackRock, Huntington Bancshares, SunTrust Banks, M&T Bank, and Bank of New York Mellon losing 4.6%, 4.0%, 3.5%, 3.4%, 1.9%,1.4%,1.2% and 1.1%, respectively.  AK Steel Holding, up 3.6%, was the largest gainer in the index.

European Stocks: Expected to open flat
European markets are expected to open flat. The DAX is likely to open 8 points lower to 3 points higher, while the CAC is expected to open 3 points lower to 2 points higher.
Gruppo Coin is scheduled to report its results later today.
According to Reuters, ten employees of Deutsche Bank's South Korean securities unit have resigned to join Barclays, after some of the unit's operations were suspended in April, following stock market manipulation allegations.
Linde has announced its plans to invest about $117 million to build an air processing plant in Indonesia, as a move to expand its operations in emerging markets.
Chief Executive Officer of Adidas, Herbert Hainer, has reportedly indicated that the company aims to reach a target of €500 million of sales of outdoor products, by 2015, without acquisitions.
LVMH Moet Hennessy Louis Vuitton’s Sephora cosmetics brand has indicated that it has acquired an additional 20.0% in Russia’s Ile de Beaute, raising its total stake to 65.0%.
Der Sonntag has reported that Actelion has indicated that it could consider putting itself up for sale, or consider other strategic options, if its experimental drug, Macitentan, fails.
The head of Airbus, Thomas Enders, has reportedly indicated that its parent, EADS, has to be protected from hostile takeovers, but does not require German state as a shareholder for the same.

Macro Update
Inflation expectations are key concern, says BOE’s Dale
Bank of England’s Chief Economist, Spencer Dale, has indicated that inflation expectations are a key concern for the central bank, and policymakers could not be totally sure that they remain well-anchored.
Euro could withstand Greek default, says Bundesbank President
Bundesbank President, Jens Weidmann, has indicated that a Greek default would not destabilize the Euro. He stated that Greece’s implementation of austerity measures and asset sales was crucial to securing the support to prevent a default.
Japanese core machinery orders fall in April
On a monthly basis, core machinery orders in Japan declined 3.3% in April, following a 2.9% rise posted in the previous month.
China to increase trade with Latin America
Chinese Vice President, Xi Jinping, has announced that China would work with Latin America to increase mutual exports of value-added products.

FX Update: Euro rebounds on Trichet’s EU hopes

Trichet wants an EU-wide finance ministry and the Euro jumped to attention on the news and rallied sharply. Elsewhere, enthusiasm for the USD seems to fade as long as soon as the finger is lifted from the panic button.

Market action today
There seems to be an asymmetry in the market moves of late – if traders can bring enough fear and loathing to the table, the expected correlations take hold and the dollar can rally smartly – much like the latter half of yesterday’s US session. But it often seems the case that when the white knuckled trading zone eases off and the market consolidates – almost no matter how slightly – the USD can’t maintain its gains very well. Of course, in today’s instance, we had the rather whiplash-inducing news of Trichet’s EU finance ministry idea, which saw EURUSD taking back all of yesterday’s losses in EURUSD and then some and likewise for EURGBP. Sovereign debt spreads responded smartly as well, both to the Trichet news and to a relatively strong Spanish bond auction (though participation in these would be interesting to observe without the ECB’s presence…).

As for the US dollar’s moves here – it appears that only “blood in the streets” can really come to the currency’s aid at the moment – the interest rate spreads after the latest string of terrible data point mostly south for the currency, with the exception of USDCAD, where comments from the BoC yesterday saw a considerable fall in rate expectations and this combined with a sharp drop in oil prices during all of yesterday’s risk aversion saw USDCAD testing higher.

An EU Finance Ministry?
Trichet asked in a speech today: “Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?”. He also suggested that he would like for the EU to have the power to veto parts of an individual country’s budget if these are seen as “harmfully astray” of fiscal prudence. All of this is considered Euro positive because signs of collective action are needed to keep the extend and pretend game running on the sovereign debt/financial system stability issue in the short to medium term. But the EU has never been popular among its citizens. Recall the 2005 constitution debate and its rejection by a number of EU nations, including France. But EuroZone politicians have a habit of functioning as an elite that is rather tone deaf to popular demands – could they really make this happen? It is almost impossible to imagine populations voting in favor of more central control of their country. But for now, it is out there and the market likes it and it is assuming that we can move in orderly fashion into a sell-off of the family silver in Greece (national asset sales) to stave off a solvency crisis for another day. Let’s see if the next layer of resistance can hold in EURUSD – the 0.618 to 0.764 retracement zone between about 1.4570 and 1.4710.

Chart: EURUSD
This market knows its technicals – as EURUSD closed right at the point of maximum uncertainty yesterday on the 55-day moving average, the 0.382 retracement line, and the important former resistance all in the 1.4350 area. The Trichet news saw the rally re-established, while the overall structure of the chart and the massive sell-off from early May still suggests that the most important resistance lies in the 0.618 and 0.764 (for which EURUSD seems, for whatever reason to have a particular affinity) retracements around 1.4570 and 1.4710, respectively. To the downside, we need to see that 55-day MA taken out on the close to build better arguments for a return to the lower end of the range.

Odds and ends
Australian data overnight was mixed after a batch of weak data of late. On the positive side, retail sales rebounded sharply in the month of April after a weak March reading. The April Trade Balance, on the other hand, was a bit weaker than expected, with the main culprit behind the shortfall a drop in iron ore exports relative to March’s blowout number after February trade was disrupted by flooding. Looking at the mix of commodity exports, the top two are iron ore and coal, which together represent around AUD 8 billion per month in revenue, about a third of all Australia’s exports.

ZeroHedge is out with a cynical  - but probably quite accurate in its gist - take on the latest speech by the US Fed’s Yellen, who was out speaking late yesterday on the risks from possible excesses in the market for leveraged loans. As a general comment on the market, she stated that: “I’ve noticed some recent developments that warrant close attention, including indications of potentially stretched valuations in certain US financial markets and emerging signs that investors are reaching for yield.” If this view is shared by others at the Fed, it could be a sign that the Fed is willing to wait until it sees the whites of the equity market’s eyes before riding to the rescue (thus rendering QE3 anticipation at the present time premature.)

A piece from the WSJ’s Hilsenrath (who seems to sometimes serve as the unofficial leaker of the latest Fed thinking) today suggests that the Fed is comfortable with its policy as it stands and that the hurdle for QE3 is rather high. There isn’t much to take away from such an article, however, because as we saw last year, over a short few months, when it became painfully obvious that the economy was doing poorly as stimulus and easing faded, the Fed rhetoric changed from one of discussing exit strategies to one of how to print money most effectively. Trust the Fed to remain behind the curve, in other words.

Looking ahead
We got another weak jobless claims print today, which, combined with the weak ADP number from yesterday suggest that the private/nonfarm payrolls totals tomorrow will come in far weaker than the expectations of just a few weeks ago. It’s almost unheard of for the unemployment rate to rise again so quickly after posting a major high, but that fear may grip the markets if we see another dip in payrolls growth and a second rise in a row in the US employment rate tomorrow. Since the end of World War II, this only really happened once, when the late 70’s crunch extended into the early 1980’s as the US came to grips with its stagflationary demons (can one imagine due to a Fed-induced credit crunch? My, how times have changed).

Also watch out for the global services PMI’s for May that begin rolling in during the Asian session (from Australia and China) and finish up with tomorrow’s critical US Non-manufacturing ISM 90 minutes after the employment report.

Hopefully, by the close on Friday, we can draw some conclusions about what this market wants to do with the greenback and risk appetite and particularly important for CHF and JPY, with interest rates. We’ve pushed  into a key level at 3.0% on the EuroBund and US 10-year note – will Friday’s data see a consolidation there or acceleration? The volatility risk lies to the upside in rates in the shortest term, we presume. Stay tuned.

Economic Data Highlights

• Australia Apr. Retail Sales out at +1.1% MoM vs. +0.4% expected, and a-0.3% in Mar.
• Australia Apr. Trade Balance out at +1597M vs. +2000M expected and +1691M in Mar.
• UK May Construction PMI out at 54.0 vs. 53.5 expected and 53.3 in Apr.
• US  Weekly Initial Jobless Claims out at 422k vs. 417k expected and 428k last week
• US Weekly Continuing Claims out at 3711k vs. 3675k expected and 3712k last week

Upcoming Economic Calendar Highlights (all times GMT)

• US Weekly Bloomberg Consumer Comfort Index (1345)
• US Apr.Factory Orders (1400)
• US Weekly DoE Crude Oil and Product Inventories (1500)
• New Zealand Apr. Building Permits (2245)
• Australia May AiG Performance of Services Industries (2330)
• China May Non-manufacturing PMI (0100)
• China May HSBC Services PMI (0230)

Why the Latest from Libya Won't Really Affect the Oil Market

 This morning I am returning home from St. Petersburg, Florida, where I spent the last several days with the Money Map team at 2011 Investment U.

But while we were enjoying the sun, good food, and good conversation, matters continued to develop elsewhere that will impact investor approaches to global energy.

Information has surfaced that forces opposing Libyan leader Muammar Gaddafi secured the major oil towns of Brega and Ras Lanuf (both port cities on the Mediterranean).

The insurgents now control fields producing between 100,000 and 130,000 barrels a day, and they say that will quickly increase to 300,000, with exports renewing in a week. That higher figure would account for about 19% of daily exports from Libya before the unrest started.

To the extent that anti-Gaddafi forces can secure the oil fields presently under their control, at least some of those exports should begin to flow again.

Yet those forces have their primary interest, these days, in driving on to the capital city of Tripoli. Already, they are fighting their way west along the coast and have closed in on Sirte, Gaddafi's hometown, within 300 miles of the capital.

That means the actual protection of this oil flow will depend upon the NATO-engineered no-fly zone. The overall strategy on that zone, in turn, depends upon an emergency meeting to be held in London tomorrow (March 29).

So the question is, will what's happening in Libya improve the crude oil on the market?

The Bottom Line: Libya Doesn't Drive Prices

Without an ongoing Western military presence in Libya, there is no assurance that exports – even if they are renewed – will continue. Additionally, the delivery and export infrastructure needs to be evaluated to determine how extensive the damage has been.

The primary oil field development projects remain under the control of Western majors, and those companies have yet to return their technicians and specialists to Libya after pulling them out. The central logistical coordination for the Libyan oil sector remains in Tripoli.

With the capital city now certain to be the focus of renewed fighting, there will be few prospects to increase export flow… even if the combination of insurgent military action on the ground and NATO strikes from the air do retain control over reclaimed fields.

Crude oil futures now hold at $105 in New York and $115 in London. Improvements have emerged, but they are quite subdued. A rise in Libyan flow is welcome, but will not change aggregate prices very much.

After all, before the unrest began, Libya was providing only 2% of the daily worldwide crude volume.

And in early January – before the broad-based explosions in the MENA (Middle East and North Africa) region and the disasters in Japan – we were still experiencing the highest crude oil prices on record for that time of year… ever.

Libya is the conflict du jour, the unfolding news that now transfixes the international media. But it is not the primary pressure destined to increase prices.

A resolution of its problems, therefore, will not bring a sudden forward-looking drop of any consequence in either West Texas Intermediate (WTI, the benchmark for NYMEX trading) or Brent (the London-based benchmark, having a more important impact on a broader range of international prices).

What really matters are two overarching dynamics now underway.

1) First, MENA unrest is intensifying across the board.

Here, the events I watch with the greatest concern are those in Bahrain. That's because, in addition to having factors addressing oil and the advancing economic difficulties, Bahrain also has the single greatest volatile factor in the entire region – a Sunni minority ruling class and a Shiite majority population.

This is akin to playing with dynamite in the streets.

It is already a religiously inspired opposition. That they are making their case for more participatory rule right in the middle of the primary source of oil in the world hardly occasions a greater comfort level.

Also, a causeway connects Bahrain to the eastern region of Saudi Arabia, where an absolute majority of that country's oil production is located. That area is also Shiite-dominated, while the ruling family in Riyadh is closer to Sunni (they are actually Wahabi, but very opposed to Shia).

When the 1979 Shiite revolution erupted across the Gulf, in Iran, the eastern province of Saudi Arabia also erupted.

Little wonder, then, that this time around Saudi security forces and police are putting down disturbances early on their own territory, while also moving into Bahrain "to keep the peace."

This is the geopolitical dimension taking over in the region.

It is no longer merely about removing a certain ruler (whether it's Gaddafi in Libya, Hosni Mubarak in Egypt, or Zine al-Abidine Ben Ali in Tunisia) or improving the life prospects of a wide portion of populations.

For the world to have confidence in the oil flow continuing, stability is required.

Yet the situation is now confronting the major internal threat to stability; a renewing collision based on the successors of Muhammad. And that had been going on for some 1,300 years…

2) Second, there are other factors at work in the oil market.

The volume coming on market is guaranteeing an increase in prices for both the crude and the oil products produced from that crude.

We do not yet have a situation in which the availability of supply is an issue. We do have sufficient oil out there – but it is costing more to extract, process, and refine. Unconventional sources – such as heavy oil, bitumen, oil sands, or oil shale – will fulfill needs for some time to come, but the price will be rising, right along with the need to use sources that are more expensive.

At some point, of course, the overall cost will begin to have a significant impact on wider economic considerations. Not simply at the pump, with the price of gasoline or diesel, but throughout the market, as increasing prices for consumer, commercial, and industrial usage begin taking their toll.

Libya is one of the last places on Earth that provides light, sweet crude – the volume that is easiest and least expensive to process.

Unfortunately, even if all of that supply returns to market, we will still be relying increasingly on more costly production.

NATO's actions may bring the Libyan oil flow back, but it cannot stem an even greater tidal wave of demand from regions worldwide.

Nor, for that matter, will no-fly zones provide any benefit in allaying the rising base of religiously driven unrest about to race across the very area we rely upon to develop the bulk of the globe's oil reserves.

Sincerely,

Kent Moors.

A Once-a-Decade, 1,200% Trade Is Setting Up Again

Rick Rule is buying natural gas…

Longtime readers are familiar with our friend Rick Rule, founder of Global Resource Investments. Rick is one of smartest, most successful resource investors in the world. In one of the greatest "runs" in investment history, from 1998 to 2006, Rick turned $15 million into roughly $460 million (before fees) for his customers.

In the resource business, you have to be willing to buy cheap, out-of-favor assets to generate those kinds of returns. You can't buy the hot asset that everyone wants.

After a two-year, 60% run in the benchmark commodity index (the CRB), cheap, hated assets are difficult to find. And right now, one of the few out-of-favor assets is natural gas… which has collapsed in price since 2007.

That's why I recently called up Rick and asked him what he thought about "natty" these days.

As I said, he's buying here… There are three big reasons why he expects much higher prices over the next five years…

First, the demand picture looks good.

Natural gas competes with thermal coal as fuel for electric power generation. From 1999 to 2009, natural gas was rarely cheaper than coal. But thermal coal prices soared over the last year. And in late 2010, natural gas prices fell below coal prices… and remain there today.

Power producers are going to start switching over to the cheaper fuel. For example, BP has already given $15 million and Ford $5 million to fund Princeton University's Carbon Mitigation Initiative project, which proposes to replace 1,400 gigawatts of coal plants with natural gas by 2015. In the grand scheme, that's not huge, but it's indicative of the trend.

Second, supply is going to drop.

Natural gas prices are so low  – under $4 per thousand cubic feet (mcf)  – it costs more to produce gas now than you can get for selling it. Most natural gas producers need $4.50-plus gas prices to break even. And most of the big, harder-to-drill shale plays need $5-plus. Natural gas producers can't keep operating like this for long. We're already seeing production shut down.

Take ConocoPhillips, the third-largest natural gas producer in Canada, for example. Conoco just cancelled new natural gas wells. It will spend the money on oil sands projects instead. In addition, it laid off 80 employees in the natural gas section and shifted others to oil sands work.

Finally, Rick has seen this all before. And last time, the rally in natural gas prices was enormous.

In the spring of 1999, natural gas prices were around $1.70 per mcf. We were coming off 15 years of plentiful gas and low prices. It was tough to make money drilling for natural gas. Domestic production fell 5% from 1996 to 1999.

But eventually, electric power generators realized how cheap natural gas had gotten. And then a brutally cold winter hit. Demand for natural gas grew. Soaring demand and a lack of natural gas production sent natural gas prices up in a spectacular run, topping out at nearly $30 per mcf (for a brief moment).

Shares of gas producers soared. Chesapeake Energy, now one of the largest natural gas exploration companies, shot up 1,233%, in just two years. This same scenario could happen again today…

It's early days in the big trend shift. It will take years to play out, but it's coming. Natural gas prices will go higher, and investors who position themselves today will make huge gains. That's why super-investor Rick Rule is buying natural gas… while the crowd doesn't want it.

If you take a cue from Rick, and invest now, you could make 1,200% or more over the coming years.

Good investing,

Matt Badiali

Financial Advisor Daily Report: Risk off on Japan Nuclear Crisis, Yen and Dollar Jump

Risk of radiation leaks in Japan following the historical earthquake triggered sharpest two days fall in Tokyo Topix on record and sent Asian equities deep in red today. The focus has turned from damages from earthquake and tsunami to nuclear crisis in Japan. Tokyo Electric Power confirmed third explosion today at the No.2 reactor of it Fukushima Dai-Ichi nuclear plant and a fire had broken out at housing in its No.4 reactor. Japan Prime Minster Kan warned of further radiation leaks. It's reported that low level radioactive wind could reach Tokyo in ten hours. Nikkei is down over -1300 pts or -13% at the time of writing. BoJ pumped another JPY 5T into the banking system, following yesterday's record JPY 15T injection. There are also talk of a brief one-off intervention in the forex markets. But Yen is still sharply higher on risk aversion and expectation of repatriation.

The forex and other markets respond by steep selloff in risks. It's reported that Japanese are liquidating position in high yield assets, including stocks, commodities and carry trade currencies for funds for rebuilding. Aussie is the worst performing currency so far today. In particular, note that AUD/JPY breaches 80.96 key near term support which could be seen as an indication of near term reversal. We'd probably seen steeper selloff in AUD/JPY if 80 psychological level is taken out. 

Elsewhere, dollar benefits from risk aversion and jumps across the board. Dollar index stages a strong rebound from yesterday's low of 76.30 and the development suggests that consolidation from 76.13 is going to extend further. That is, the index would likely stay in range of 76.13/77.38 for a while. At this point, there is no clear sign of reversal yet and we won't turn bullish in dollar until we see sustainable upside momentum in the index.  

On the data front, German ZEW, Eurozone employment, UK DCLG house prices, Canada labor productivity, US empire state manufacturing, import price, TIC capital flows, NAHB housing index will be released. Fed will also announce rate decision today. But all eyes will remain on development in Japan and these events would take a back seat.

How America Became a Communist Nation

The Greeks may be the most notorious of the world's profligate nations… but they are not the real problem.

The real problem is much larger and more complex.

The root of the problem the world is facing right now isn't really governments… or banks. The real problem is simply a very bad idea – the idea that the State ought to sit in the center of society. Let me explain…

The last 100 years (since 1914) saw not only the end of the classic gold standard, but also the fantastic ascendancy of the nation-state.

These two trends are inherently and dangerously related.

Until World War I, the central government of the United States, for example, played a small role in the lives of its citizens. Its powers were strictly limited, as were its revenues. It was specifically barred from taxing citizens directly. It was a humble government that interacted with the individual states in the union, but didn't interact much with individual citizens.

The first signs of change came after the Civil War. "Progressive" ideas began to emerge. Most of these ideas came from Germany, from philosophers like Karl Marx and Friedrich Engels. The core of these ideas was that the State itself was superior to its citizens. Therefore, the argument went, society ought to be organized to better accomplish the goals of the State.

Today, most Americans have no idea that the foundations of our modern State are based – nearly verbatim – on the demands of Karl Marx's Communist Manifesto.

In 1848, Marx threatened to organize a worker's revolution unless European governments:

1. Abolished property rights and applied all rents towards public purposes.

[Modern corollary: Don't pay your property taxes, lose your house. So who really owns your house?]

2. Levied a heavy, progressive income tax to equalize wages.

[Modern corollary: Combined federal and state marginal income and payroll taxes approach (or surpass) 50% in many U.S. states.]

3. Abolished all rights of inheritance.

[Modern corollary: The estate tax.]

4. Confiscated the property of all emigrants.

[Modern corollary: The 2008 "Hero's Act," which forces people leaving the U.S. to pay the equivalent of their estate taxes on the global assets before they turn in their passports.]

5. Centralized access to credit in the hands of the State by means of a national bank and an exclusive monopoly.

[Modern corollary: Fannie Mae and Freddie Mac, which make more than 90% of all of the mortgages in the U.S. and have dominated the market for mortgages for decades.]

6. Centralized the means of communication and transport in the hands of the State.

[Modern corollary: AT&T was a legal monopoly for decades. Amtrak is a ward of the states. The government owns all the roads. And the State controls all air traffic.]

7. Provided free education for all children in public schools.

[Note the emphasis on public schools. Paying for education isn't enough. What counts is indoctrinating the kids in glorifying the State.]

8. Produced a common agricultural policy to maximize the productivity of the land.

[Modern corollary: Massive ethanol and agricultural subsidies.]

Most people in democracies like these ideas for one simple reason: They hold the allure of getting something for nothing. They are the siren song of living at the expense of your neighbor.

These ideas became extremely popular over the last 100 years, all around the world. As a result, as democracy spread, so did these ideas. Politicians of each party and persuasion throughout the Western world quickly adopted them as their own (and never mentioned Marx).

As these ideas took hold, one big problem developed… How do you pay for them?

Progressive politicians believed they had the answer. They just took Marx's big innovation: A progressive income tax. Let the rich pay!

It's a popular idea – but it never works because decisions to add more benefits don't take into account the expense of paying for them. It doesn't take long for the budget to get out of control. Or said another way, everyone can't live at the expensive of his neighbor. His neighbor can't afford it… and he moves.

More serious, the flaw in communism is obvious. Communism doesn't account for the fact that people expect to control the fruits of their labor. People don't like their assets being stolen and their wages being heavily taxed by a government that regulates their businesses and sends their children off to war. Incrementally, people stop working. Wealthy people flee… or hide their incomes.

Tax revenues fail to meet projections. Deficits grow. Deficit spending soars. And debts mount.

That's where paper money comes in. Paper money isn't only good for financing a war. It's also perfect for closing the gap between what an economy ought to produce and its paltry real production when it has been beaten into submission by communist ideas. I like to explain it this way…

The central truth of economics is scarcity. There can never be enough of anything to satisfy everyone. The central truth of politics is patronage: promising to give everything to everyone. Paper money is the bridge between economics and politic s.

The unpaid debts of an entire generation of people in Western countries are coming due. The so-called "baby boomers" grew up in a world dominated by Marxism and Keynesian economics. These are bad ideas. They are destined to collapse.

And the collapse is here.

Regards,

Porter Stansberry 

Macro Kickoff: Bernanke sows the seeds for further QE

A busy week with plenty of central bank action, gets off to a slow start today with Canadian housing data and PMI. Stocks are down slightly and the dollar up as Federal Reserve Chairman Bernanke stated that the central bank may expand QE2 from the current amount of $600 billion.
The Canadian housing market has been under pressure lately with some weak reports though last month’s 15% increase month-on-month in permits have eased the fears that a significant downturn is nearby. We still expect the housing market to slow even further in the coming quarters.
Chairman Ben Bernanke has remarked that the Fed may choose to increase the amount of quantitative easing as the bank is of the opinion that growth may be too weak to make a serious dent in the unemployment rate, which rose by 0.2 points to 9.8% in November according to the employment report released last Friday. The report also showed that only 39,000 new jobs were created in November, much below our own and consensus estimate of 150,000. We maintain our position that expanding QE2 will do nothing except boost the banks’ balance sheets as there is simply not enough demand from borrowers for additional loans at the moment.
In addition to Canadian housing data we also get the Ivey Purchasing Managers’ Index at 15:00 GMT. The index has been very strong in most of 2010 though it did decline to 56.7 in the latest report. However, that still suggests solid growth in the fourth quarter.

The Sleeping Bull Awakes--Refreshed

The sleeping bull awakes--refreshed.
Consumer Discretionary stock sector absolute price rose above 3-year highs and remains bullish.

Energy stock sector Relative Strength Ratio (XLE/SPY) rose above 12-month highs and remains bullish. Absolute price rose above 2-year highs and remains bullish.

Materials stock sector Relative Strength Ratio (XLB/SPY) rose above 11-month highs and remains bullish.

Health Care stock sector Relative Strength Ratio (XLV/SPY) fell below 2-year lows and remains bearish, as it has been most of the time since peaking on 2/23/09.

Utilities stock sector Relative Strength Ratio (XLU/SPY) fell below 7-month lows and remains bearish.

Crude Oil moved above 11-day highs, again confirming a bullish trend for the short term. Longer term, Oil rose above 2-year highs on 11/11/10, again reconfirming a bullish major trend.

Gold rose further above the previous 2-weeks’ highs, confirming a short-term uptrend. Longer term, Gold rose above previous all-time highs on 11/9/10, again confirming the bullish major trend.

Silver rose further above the previous 3-weeks’ highs, confirming a short-term uptrend. Longer term, Silver rose above previous 30-year highs on 11/9/10, confirming a bullish major trend.

Silver/Gold Ratio rose further above 2-year highs, again confirming a bullish trend. Silver has outperformed Gold substantially since 8/20/10.

Copper rose above the previous 2-weeks’ highs, signaling a short-term uptrend. Longer term, Copper rose above previous 2-year highs on 11/11/10, again confirming the bullish major trend. Strength in Copper suggests confidence about prospects for the world economy.

U.S. Treasury Bond fell below 7-day lows, signaling a short-term downtrend.

The U.S. dollar fell below the previous day’s range. This could be a sign of exhaustion after a big run up since the low on 11/3/10. USD may have found resistance near its 200-day SMA, which stands just below chart resistance at 82.02.

S&P 500 Composite (SPX, 1,206.07) rose 19.47 points or 1.64% on Wednesday for its biggest daily gain in 3 months. SPX rose above previous 11-day highs on 12/1/10, signaling a new short-term uptrend. Overnight, ECB President Trichet expressed resolve and confidence in the financial stability of the Euro-zone, leading speculators to expect strong ECB measures to control the debt crisis. Stocks gapped up at the open and added further to gains through the morning before stabilizing near the highest levels of the day in the afternoon. In recent weeks, SPX held above 1173.00, the low of 11/16/10, and above key Simple Moving Averages: the 50-day SMA, now at 1179.39 and rising, and the 200-day SMA, now at 1134.26 and rising. Longer term, SPX rose above 2-year highs on 11/5/10, again reconfirming a bullish major trend.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.

Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
4.04% , EWI , Italy Index, EWI
2.64% , TBH , Telebras HOLDRS, TBH
6.02% , EWP , Spain Index, EWP
2.17% , PWT , Growth SmallCap Dynamic PS, PWT
1.86% , IYK , Consumer Non-Cyclical, IYK
2.09% , DGT , Global Titans, DGT
2.66% , PWO , OTC Dynamic PS, PWO
1.91% , PTE , Telecommunications & Wireless, PTE
3.20% , EWQ , France Index, EWQ
1.71% , PIV , Value Line Timeliness MidCap Gr, PIV
2.90% , ADRD , Developed 100 BLDRS, ADRD
2.01% , JKL , Value SmallCap iS M, JKL
3.40% , PSTL , Steel Global PS ETF, PSTL
1.66% , IXP , Telecommunications Global, IXP
2.44% , PPA , Aerospace & Defense, PPA
3.61% , EWK , Belgium Index, EWK
3.80% , EZU , EMU Europe Index, EZU
2.24% , IWP , Growth MidCap Russell, IWP
3.59% , PMCS , PMC SIERRA
5.99% , HAR , Harman International
2.36% , PXQ , Networking, PXQ
2.29% , PWJ , Growth Mid Cap Dynamic PS, PWJ
2.93% , PZJ , SmallCap PS Zacks, PZJ
4.09% , PIN , India PS, PIN
2.61% , BDH , Broadband H, BDH
4.21% , LH , LAB CRP OF AMER
5.00% , HOLX , Hologic, Inc., HOLX
4.50% , MOT , MOTOROLA
2.67% , KCE , Capital Markets KWB ST, KCE
3.22% , PSI , Semiconductors, PSI
2.13% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
6.28% , RHT , Red Hat Inc.
4.77% , MRVL , MARVELL TECHNOLOGY
2.42% , ERIC.O , LM Ericsson Telephone Company
5.81% , GNTX , Gentex Corporation
3.69% , LEN , Lennar Corp. (LEN)
7.06% , MAS , MASCO
3.65% , WYNN , Wynn Resorts L
3.69% , JNY , JONES APPAREL
3.97% , CMCSA , COMCAST HOLDINGS STK A

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.01% , MYY , Short 100% MidCap 400, MYY
-1.94% , TLH , Bond 10-20 Year US Treas, TLH
-4.54% , DXD , Short 200% Dow 30 PS, DXD
-4.27% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.56% , IEF , Bond, 10 Year Treasury, IEF
-2.00% , MBI , MBIA
-2.15% , SH , Short 100% S&P 500, SH
-2.24% , DOG , Short 100% Dow 30, DOG
-2.56% , TLT , Bond, 20+ Years Treasury, TLT
-1.03% , AGG , Bond, Aggregate, AGG
-1.33% , HANS , Hansen Natural, HANS
-0.71% , KSS , KOHLS
-0.82% , MUB , Bond Muni ATM-Free S&P iS, MUB
-4.23% , SDS , Short 200% S&P 500 PS, SDS
-0.44% , DV , DeVry, Inc.
-0.10% , TEVA , Teva Pharmaceutical Industries Limited
-0.61% , LQD , Bond, Corp, LQD
-0.81% , TIP , Bond, TIPS, TIP
-0.23% , SHY , Bond, 1-3 Year Treasury, SHY
-0.03% , SHV , Bond Treasury Short-Term iS, SHV
-0.11% , GENZ , GENZYME
-0.04% , TJX , TJX
-0.20% , HSP , HOSPIRA
-0.26% , FMCN , Focus Media, FMCN

9 major U.S. stock sectors ranked in order of long-term relative strength:

Consumer Discretionary (XLY) Bullish, Over Weight. The Relative Strength Ratio (XLY/SPY) rose above 12-year highs on 11/26/10 and remains bullish. XLY has been at the top of my sector rankings for more than a year and has outperformed substantially. Absolute price rose above 3-year highs on 12/1/10 and remains bullish. Support 35.32, 35.02, 34.78, 33.94, 33.11, 32.66, 31.70, 29.80, 28.64, 28.21, and 26.62. Resistance 38.25 and 39.09.

Energy (XLE) Bullish, Over Weight. The Relative Strength Ratio (XLE/SPY) rose above 12-month highs on 12/1/10 and remains bullish. Absolute price rose above 2-year highs on 12/1/10 and remains bullish. Support 60.96, 60.21, 57.70, 55.68, 53.22, 50.33, 48.56, 46.16, and 43.66. Resistance 63.89, 69.95 and 78.10.

Industrial (XLI) Bullish, Over Weight. The Relative Strength Ratio (XLI/SPY) rose above 6-week highs on 11/26/10, thereby turning bullish following a normal correction. Absolute price rose above 2-year highs on 11/5/10 and remains bullish. Support 31.82, 31.58, 30.79, 30.51, 30.32, 29.77, and 27.67. Resistance 33.53, 35.00, and 36.16.

Materials (XLB) Bullish, Over Weight. The Relative Strength Ratio (XLB/SPY) rose above 11-month highs on 12/1/10 and remains bullish. Absolute price successfully tested its rising 50-day SMA again on 11/29/10 and remains bullish. Support 34.20, 33.70, 32.36, 29.88, 29.43, and 27.67. Resistance 36.71, 37.56, and 39.00.

Technology (XLK) Bullish, Over Weight. The Relative Strength Ratio (XLK/SPY) rose above its 50-day SMA on 11/22/10 and turned bullish again. Absolute price of XLK rose above 2-year highs on 11/4/10 and remains bullish. Support 23.74, 23.64, 23.56, 22.68, 22.53, 21.60, 20.01, and 19.51. Resistance 25.28 and 25.69.

Consumer Staples (XLP) Bearish, Under Weight. The Relative Strength Ratio (XLP/SPY) fell below 5-month lows on 11/10/10 and remains bearish. Absolute price fell below its 50-day SMA on 11/29/10 thereby turning neutral. Support 28.04, 27.76, 27.63, 27.46, 26.34, 25.30, and 24.95. Resistance 28.85, 29.27, 29.29 and 30.29.

Health Care (XLV) Bearish, Under Weight. The Relative Strength Ratio (XLV/SPY) fell below 2-year lows on 12/1/10 and remains bearish, as it has been most of the time since peaking on 2/23/09. Absolute price of XLV fell below 8-week lows on 11/29/10. Support 30.11, 29.87, 28.00, 27.49. Resistance 31.04, 31.73, 32.05, 32.18, 32.42, 32.69, 33.16, 33.37 and 33.74.

Utilities (XLU) Bearish, Under Weight. The Relative Strength Ratio (XLU/SPY) fell below 7-month lows on 12/1/10 and remains bearish. Absolute price of XLU fell below 13-week lows on 11/29/10. Support 29.66, 27.91, 27.44, and 25.76. Resistance 32.11 and 32.40.

Financial (XLF) Bearish, Under Weight. The Relative Strength Ratio (XLF/SPY) fell below 18-month lows on 11/26/10 and remains bearish. Absolute price of XLF fell below 9-week lows on 11/23/10, and the 50-day SMA remains below the 200-day SMA. Support 14.25, 14.20, 13.29, and 13.08. Resistance 14.96, 15.68, 16.13, 16.90, 17.12, 17.16, and 17.87.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) broke down below 3-month lows on 11/26/10 and remains neutral.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) broke down below 5-month lows on 11/30/10 and remains neutral.

NASDAQ Composite/S&P 500 Relative Strength Ratio rose above 9-year highs on 11/26/10 and remains bullish for the long term. This RS Ratio has been in an uptrend for nearly 2 years, since 12/2/08. Absolute price rose above 2-year highs on 11/8/10 and remains bullish.

iShares Russell 1000 Growth/S&P 500 Relative Strength Ratio (IWF/SPY) rose above 19-month highs again on 11/26/10 and remains bullish.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell below 28-year lows on 11/26/10. This RS Ratio has been trending lower since 8/3/10. Longer term, big caps have been relatively out of favor for more than 10 years, since 3/29/2000.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) rose above 20-year highs on 11/26/10 and remains bullish.

The S&P MidCap 400/Large Cap Relative Strength Ratio (MDY/SPY) rose above 15-year highs on 11/26/10 and remains bullish. Absolute price rose above 2-year highs on 11/24/10 and remains bullish.

Crude Oil nearest futures contract price moved above 11-day highs on 12/1/10, again confirming a bullish trend for the short term. Longer term, Oil rose above 2-year highs on 11/11/10, again reconfirming a bullish major trend. Support 80.28, 79.84, 79.25, 78.86, 72.63, 70.76, 70.35, 69.51, 68.59, 67.15, 65.05, and 64.24. Resistance 88.63, 89.10, 90.51, 98.65, and 102.84.

Gold nearest futures contract price rose further above the previous 2-weeks’ highs on 12/1/10, confirming a short-term uptrend. Longer term, Gold rose above previous all-time highs on 11/9/10, again confirming the bullish major trend. Support 1350.1, 1329.0, 1315.6, 1297.0, 1274.8, 1270.5, 1232.4, 1210.9, 1191.5, and 1155.6. Resistance: 1424.3.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) rose above 11-month highs on 11/22/10 and remains bullish.

Silver nearest futures contract price rose further above the previous 3-weeks’ highs on 12/1/10, confirming a short-term uptrend. Longer term, Silver rose above previous 30-year highs on 11/9/10, confirming a bullish major trend.

Silver/Gold Ratio rose further above 2-year highs on 12/1/10, again confirming a bullish trend. Silver has outperformed Gold substantially since 8/20/10.

Copper nearest futures contract price rose above the previous 2-weeks’ highs on 12/1/10, signaling a short-term uptrend. Longer term, Copper rose above previous 2-year highs on 11/11/10, again confirming the bullish major trend. Strength in Copper suggests confidence about prospects for the world economy, while weakness in Copper suggests doubts. Support 3.6065, 3.3930, 3.1775, 2.9285, 2.8555, 2.8445, and 2.72. Resistance 3.90, 4.0825, and 4.27.

U.S. Treasury Bond nearest futures contract price fell below 7-day lows on 12/1/10, signaling a short-term downtrend. The bond fell below the lows of the previous 4 months on 11/15/10, confirming the preexisting bearish trend for the intermediate-term trend. Support 125.15, 125.07, 124.19, 123.03, 121.28, 119.26, 118.24, 118.12, 115.15, 114.06. 113.04, and 112.15. Resistance 129.03, 129.27, 132.26, 133.00, 135.12, 135.19, 136.31, 137.31, and 142.31.

Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) fell below 5-week lows on 11/23/10 and remains neutral. Absolute price fell below 8-week lows on 11/23/10 and is now neutral.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) has firmed up moderately since making a low on 8/24/10, which implies that fixed-income investors have been choosing somewhat greater inflation protection over the past 3 months.

The U.S. dollar nearest futures contract price fell below the previous day’s range on 12/1/10. This could be a sign of exhaustion after a big run up since the low on 11/3/10. USD may have found resistance near its 200-day SMA, which stands just below chart resistance at 82.02. Longer term, USD fell below 11-month lows on 11/3/10, thereby confirming a bearish long-term price trend. Support 78.01, 75.23, 74.27, and 70.80. Resistance 82.02, 83.64, 84.73, 85.36, 86.71, 88.80, 89.22, 89.71, and 92.53.

Advisory Service Sentiment: There were 55.4% Bulls versus 21.8% Bears as of 12/1/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio stands at 2.54, which is between one and two standard deviations above the long-term mean. This is not overly excessive bullish sentiment in the second year of a bull market. The 20-year range is 0.41 to 3.74, the median is 1.54, and the mean is 1.61.

VIX Fear Index rose from 17.76 on 11/19/10 to 23.84 intraday on 11/29/10. A relatively high and rising VIX indicates increasing anxiety, worry, and fear for market prospects on the part of options players. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

The Dow Theory reconfirmed a Primary Tide Bull Market as of 11/3/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 25 months. The Dow Theory originally signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. Many other analysts were fooled into calling “Bear Market” by the big downside Secondary Reaction in May and June 2010, but my interpretation has been steadily Bullish on the Primary Trend.

S&P 500 Composite (SPX, 1,206.07) rose 19.47 points or 1.64% on Wednesday for its biggest daily gain in 3 months. SPX rose above previous 11-day highs on 12/1/10, signaling a new short-term uptrend. Overnight, ECB President Trichet expressed resolve and confidence in the financial stability of the Euro-zone, leading speculators to expect strong ECB measures to control the debt crisis. Stocks gapped up at the open and added further to gains through the morning before stabilizing near the highest levels of the day in the afternoon. In recent weeks, SPX held above 1173.00, the low of 11/16/10, and above key Simple Moving Averages: the 50-day SMA, now at 1179.39 and rising, and the 200-day SMA, now at 1134.26 and rising. Longer term, SPX rose above 2-year highs on 11/5/10, again reconfirming a bullish major trend.

S&P 500 Cash Index Potential Resistance
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1366.59, high of 6/17/2008
1335.63, high of 6/25/2008
1313.15, high of 8/11/2008
1274.42, high of 9/8/2008
1255.09, high of 9/12/2008
1238.81, Fibonacci 78.6% of 1,576.09 high
1228.74, Fibonacci 61.8% of 2007-2009 range
1227.08, high of 11/5/10

S&P 500 Cash Index Potential Support
1173.00, low of 11/16/10
1171.70, low of 10/27/10
1166.74, low of 10/20/10
1159.71, low of 10/19/10
1,151.41, low of 10/7/10
1,131.87, low of 10/4/10
1122.79, low of 9/23/2010
1114.63, low of 9/15/2010
1110.88, low of 9/10/2010
1091.15, low of 9/7/2010
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

6.02% Spain Index, EWP
4.85% Austria Index, EWO
4.60% Indonesia MV, IDX
4.09% India PS, PIN
4.04% Italy Index, EWI
3.92% Netherlands Index, EWN
3.86% Germany Index, EWG
3.86% India Earnings WTree, EPI
3.80% EMU Europe Index, EZU
3.61% Belgium Index, EWK
3.58% Homebuilders SPDR, XHB
3.44% Thailand MSCI iS, THD
3.42% Sweden Index, EWD
3.38% European VIPERs, VGK
3.34% Semiconductor SPDR, XSD
3.27% Value EAFE MSCI, EFV
3.22% Oil, Crude, U.S. Oil Fund, USO
3.22% Europe 350 S&P Index, IEV
3.20% France Index, EWQ
3.19% Metals & Mining SPDR, XME
3.11% Turkey MSCI iS, TUR
3.08% South Korea Index, EWY
3.02% Semiconductor iS IGW, SOXX
3.01% Emerging VIPERs, VWO
2.97% Energy SPDR, XLE
2.95% Commodity Tracking, DBC
2.87% Natural Resource iS GS, IGE
2.87% Emerging Markets, EEM
2.86% Hong Kong Index, EWH
2.85% Russia MV, RSX
2.84% Singapore Index, EWS
2.84% Taiwan Index, EWT
2.84% EAFE Index, EFA
2.84% Energy DJ, IYE
2.79% Global ex US ACWI iS, ACWX
2.76% Pacific ex-Japan, EPP
2.76% Australia Index, EWA
2.73% Energy VIPERs, VDE
2.73% Materials SPDR, XLB
2.72% Basic Materials DJ US, IYM
2.67% Capital Markets KWB ST, KCE
2.66% United Kingdom Index, EWU
2.63% Small Cap EAFE MSCI iS, SCZ
2.63% Energy Global, IXC
2.58% Industrial SPDR, XLI
2.57% Growth EAFE MSCI, EFG
2.56% China 25 iS, FXI
2.54% Global 100, IOO
2.42% Canada Index, EWC
2.38% Transportation Av DJ, IYT
2.38% Emerging 50 BLDRS, ADRE
2.33% Growth SmallCap R 2000, IWO
2.33% Financial Services DJ, IYG
2.28% Brazil Index, EWZ
2.28% Value SmallCap S&P 600 B, IJS
2.27% DIAMONDS (DJIA), DIA
2.26% Water Resources, PHO
2.26% LargeCap Blend Russell 3000, IWV
2.25% Info Tech VIPERs, VGT
2.24% Growth MidCap Russell, IWP
2.24% SmallCap Russell 2000, IWM
2.24% Growth S&P 500/BARRA, IVW
2.24% LargeCap Blend S&P=Weight R, RSP
2.22% LargeCap 1000 R, IWB
2.22% South Africa Index, EZA
2.20% Technology DJ US, IYW
2.18% S&P 500 iS LargeCap Blend, IVV
2.17% Value VIPERs, VTV
2.17% Value S&P 500 B, IVE
2.17% Agriculture DB PS, DBA
2.16% Small Cap VIPERs, VB
2.15% Growth BARRA Small Cap 600, IJT
2.15% Blend Total Market VIPERs, VTI
2.14% Growth SmallCap VIPERs, VBK
2.13% Value 1000 Russell, IWD
2.13% Consumer Discretionary SPDR, XLY
2.13% Technology SPDR, XLK
2.13% Value MidCap S&P 400 B, IJJ
2.12% S&P 500 SPDRs LargeCap Blend, SPY
2.12% Growth LargeCap NASDAQ 100, QQQQ
2.12% LargeCap VIPERs, VV
2.12% Value SmallCap Russell 2000, IWN
2.12% Value SmallCap VIPERS, VBR
2.12% Pacific VIPERs, VPL
2.11% MidCap Russell, IWR
2.11% Growth 1000 Russell, IWF
2.11% Dividend Appreciation Vipers, VIG
2.11% Growth VIPERs, VUG
2.10% LargeCap Blend S&P 100, OEF
2.10% MidCap S&P 400 SPDRs, MDY
2.08% WilderHill Clean Energy PS, PBW
2.06% SmallCap S&P 600, IJR
2.06% Financial DJ US, IYF
2.05% Networking, IGN
2.04% Japan Index, EWJ
2.04% Financials VIPERs, VFH
2.02% Financial SPDR, XLF
2.00% MidCap S&P 400 iS, IJH
1.98% Dividend International, PID
1.98% Switzerland Index, EWL
1.97% Value MidCap Russell, IWS
1.93% Growth MidCap 400 B, IJK
1.92% Value LargeCap Dynamic PS, PWV
1.92% Latin Am 40, ILF
1.92% Health Care SPDR, XLV
1.88% Telecom DJ US, IYZ
1.84% Dividend DJ Select, DVY
1.79% Value SmallCap S&P 600, RZV
1.69% Malaysia Index, EWM
1.68% Microcap Russell, IWC
1.62% Consumer Staples SPDR, XLP
1.62% Dividend SPDR, SDY
1.58% China LargeCap Growth G D H USX PS, PGJ
1.53% Dividend High Yield Equity PS, PEY
1.47% Mexico Index, EWW
1.35% Biotech SPDR, XBI
1.35% Silver Trust iS, SLV
1.17% Utilities SPDR, XLU
1.14% Utilities VIPERs, VPU
0.89% Realty Cohen & Steers, ICF
0.76% Real Estate US DJ, IYR
0.74% Chile MSCI iS, ECH
0.68% REIT Wilshire, RWR
0.62% Financial Preferred, PGF
0.58% REIT VIPERs, VNQ
0.26% Bond, High-Yield Corporate, HYG
0.18% Bond Ex-US Treas, BWX
0.05% Bond, High-Yield Junk, JNK
-0.02% Bond EmrgMkt JPM iS, EMB
-0.03% Bond Treasury Short-Term iS, SHV
-0.03% Gold Shares S.T., GLD
-0.23% Bond, 1-3 Year Treasury, SHY
-0.33% Preferred Stock iS, PFF
-0.61% Bond, Corp, LQD
-0.81% Bond, TIPS, TIP
-0.82% Bond Muni ATM-Free S&P iS, MUB
-1.03% Bond, Aggregate, AGG
-1.56% Bond, 10 Year Treasury, IEF
-2.56% Bond, 20+ Years Treasury, TLT