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Legislation and Risks To Natural Gas Development (CHK, WMB, XTO, OXY, APA, EP, DVN)

The American Exploration and Production Council (AXPC) today released a study by Wood Mackenzie, an energy consulting firm, claiming that costs to the natural gas industry associated with the pending alterations to the Lieberman/Warner Climate Security Act of 2007 put at risk the development of US natural gas resources. The 25-member council includes Chesapeake (NYSE:CHK), Williams (NYSE:WMB), XTO Energy (NYSE:XTO), Occidental (NYSE:OXY), Apache (NYSE:APA), El Paso (NYSE:EP), and Devon (NYSE:DVN).

Here's the money quote from the AXPC press release: "...it is likely that a significant share of
government-imposed consumer emission allowance costs assessed on processors would actually be paid by exploration and production companies in the near term as funds are diverted, contracts are renegotiated, and the market adjusts to this new commodity burden." The conclusion is that if E&P companies must pay for carbon allowances, they will spend less on production, prices for natural gas will rise, and consumers will face higher prices due to limited availability on natural gas.

Well, you can't blame gas producers for trying, but this is akin to yelling "Boo!" during a horror movie: who cares? What the producers are probably really upset about is the Act's restriction on how much the cost of the allowances they will be allowed to recover from customers. If emission costs are borne 100% by producers, the Wood Mackenzie study estimates that nearly 50% of projected production for 2012-2017 becomes uneconomic to produce. If 50% of emissions costs are forced on producers, up to 14% of production becomes uneconomic.

The price of natural gas for US consumers is likely to depend far more on the spot price of LNG than it is on the cost of carbon allowances. If LNG prices are high (and there's every reason to believe they will be), the price of US-produced natural gas will also be high. The AXPC may be fighting an unnecessary battle on this issue. Congress has determined that the best way to assess carbon allowances is at the wellhead or the point of import. Once that's done, producers, processors, and consumers are treated the same. The producers might not like it, but they may just have to deal with it.

George Soros noted that speculation is driving up energy prices, and we also saw T. Boone Pickens call for $150 per barrel for oil by the end of this year.

Paul Ausick
May 29, 2008

Companies With Political Ties Get Better Share Prices

Perhaps best that this is posted without comment.

According to Reuters, "Companies with a board member who has ties to a winning political party enjoy a significant bounce in their share price following an election."

In addition, the study by the Berlin-based European School of Management and Technology showed that "Seven days after the U.S. presidential election in 2000 companies in the benchmark Standard & Poor's 500 Index with board connections to the winning Republican party posted a nearly 3 percent increase in share price."

And that election was stolen in Florida when no one could figure out what to do with hanging chads.

Who says conspiracy theories are not true?

Douglas A. McIntyre

Henry M. Paulson, Jr. For President

In 1968, there was a sad little man on the popular TV show "Laugh In" who ran for president. His name was Pat Paulsen. He probably did not get any votes.

Whatever he policies are on Iraq, universal health, and the war on drugs, Henry Paulson, current Secretary of the Treasury, is as close to a president as the US has. George Bush spends most of his time overseas or cutting brush at his ranch. Paulson is dealing with the most immediate problem, and the most serious, the disintegrating economy. Since it may be the most pressing crisis to hit the US in thirty years, Paulson is at the wheel of events which could put the US into an economic and social catastrophe for several years.

So far, Paulson has done a better job than most could have expected. With his sidekick, Ben Bernanke of the Fed, he has not allowed a single major financial institution to fail. While the stock market has dropped some, it has not hit a tail-spin which could take it down several thousand points over a few brief weeks. His solutions to the mortgage crisis may not work, but they have a sound underpinning in logic.

Paulson and Bernanke have made sure that the market is awash in capital. Banks and brokerages are taking money from the Fed at an alarming rate, but it may require that to keep the financial system solvent. Paulson's one major failing so far is that he has not gotten the banks to pass lower rates on to consumers and small business. If he can accomplish that, he may keep the economy from its deepest dip since 1973.

Paulson is more important to the US, at least over the next year, than anyone sitting as president or running. Whoever is elected will not be seated until January.

Paulson's appointment may be temporary, but he should be put in charge.

Douglas A. McIntyre

Jim Cramer Interviews Hillary Clinton

On CNBC's MAD MONEY, Jim Cramer interviewed presidential candidate Hillary Clinton on several economic issues.  Keep in mind this was a mere ten minute segment, so this was far from a full economic policy session with all the points.  These comments are all paraphrasing, so please understand any slight discrepancies on a word for word basis.  Below are the comments, and Cramer's questions or statements are in bold.

Cramer said Hillary was well ahead of the curve in identifying the housing crisis.

• Hillary said that many people were mislead into scam mortgages, and that regulators haven't done enough.  She wants a 90-day moratorium on foreclosures and to freeze adjustable rate mortgages.  "We need bolder action, and we need it now."

Cramer talked about unleashing the FHA as far as those who cannot refinance the houses they live in.

• Hillary said she advocated that and the FHA would have to raise limits.  Inflation is up and these uncharted waters are going to be hard to navigate.

Cramer asked about Washington playing a role in the mortgage problem. 

• Hillary said this was entire unprecedented.  She noted many borrowers were mislead with over-enthusiastic appraisals and the scam went from top to bottom.

As far as NAFTA, Cramer noted that a NAFTA suspension would create a major economic shut-down.

• Hillary said there is actually an opt-out in NAFTA, it's been on the books for 14 years and it is time for a change to the rules.  She said she wants balanced growth.

Cramer then asked about inflation and "burning food" at the expense of food prices, part of his ag-flation theme. He said if we scrapped ethanol it would bring those prices down.

• Hillary said it is a little more complicated, but rising corn and soybeans have contributed.  She said we are in a transition period that requires all forms of alternative energy and she then noted cellulosic, wind, solar, and new forms of energy for cars. She wants more hybrids and more plug-in cars.  She did NOT note anything about nuclear power plants, and Cramer didn't go there even on a sidebar comment.
• Here were some prior Cramer comments there on ag-flation: Last night Cramer said to put several of the ag-flation beneficiaries on your shopping list after these stock prices take a hit after this week;  he also featured another stock as a hidden value agriculture stock; here were his "wild bull market picks" in the sector last year if you'd like to compare.

Cramer asked "Are you going to eliminate the low taxes on dividends on stocks?"

• Hillary said we might see some increase but nothing severe that would affect overall investing. But then she did note that people over $250K per year would revert back to the 1990's level and it woulds help fund a universal health care.
• It's been a while, but here were Cramer's boring yield stocks for retirement and here were Cramer's Dogs of the Dow targets.

OK, now we know some of you love Cramer and some of you can't stand him.  We also know many of you like Hillary and many are as far away from liking here as it can be.  These are a paraphrasing of their comments, and nothing more other than support data on the topics discussed.  We won't be trying to influence your decision, nor will we make any apologies or excuses for any questions or statements that are "for or against" any public policies that investors and voters alike will use in making their decisions.

Jon C. Ogg
February 27, 2008

Fidel Castro Gone, Herzfeld Wins (CUBA)

Herzfeld Caribbean Basin Fund Inc. (NASDAQ: CUBA) has been "the go-to trade" for Americans that wanted to invest in the potential normalization of US-Cuba relations. Until today, that always seemed more of a mystical potentiality rather than a finite event with a known time frame. 

With the news that Fidel Castro will not be returning to official power to run the country, this will get a lot of attention today and this week.  We'd advise traders that the swings we see this week should be quite wild.  If you want to see how "Castro-rumors" in the past have moved this closed-end fund, look at the move in late-2006 and then again in early to mid-2007.  This saw similar moves in the earlier part of this decade and in the late 1990's.  You can find more historical data at the herzfeld.com site.

Unfortunately we are still a long ways off from any normalized relations.  Fidel's brother Raul has been in charge of the country for much of the last 18-months as Fidel has "been ill."  But the good news is that this is at least step one of a ten or twenty step process.  We have covered this one before for our "10 Stocks Under $10" letter, and this one is now looking like it can come to fruition.

We'd beware of any major gap-ups that are too high in this closed-end fund because its total share count is so small and the float is extremely thin.  Herzfeld also closed at a discount to its N.A.V. last week, and this used to trade at a slight premium to a large back when this was above $10.00.

Be advised that this recently had a float of about 1.7 million shares before the last distribution and its market cap was only about $12.5 million, but that appears to have roughly doubled after a fairly recent rights offering.  It has an extremely thin daily trading volume, so today's moves are going to probably be quite exaggerated.

Jon C. Ogg
February 19, 2008

Super Tuesday Election Winner: STEM CELLS (STEM, GERN, ASTM, IVGN, KOOL, NBS, OSIR)

Despite not knowing whom the ultimate winner of the 2008 Presidential election will be, it looks like stem cells may be one of the real bright spots as far as which area in biotech will be open for more funding down the road.  If the Democrats win this is a shoe in.  If McCain wins, the current research clamp-downs won't likely be as stringent in 2009 and beyond as they are today.  If Romney stages a comeback, despite many thinking of him as a religious figure our indications are that he at worst would not be anywhere as tough on the stem cell studies as the current administration.  Public companies such as StemCells Inc. (NASDAQ: STEM), Geron Corporation (NASDAQ: GERN), Aastrom Biosciences, Inc. (NASDAQ: ASTM), and others are going to be watching closely.

If you look at Tradesports.com for the political futures, you can see the Presidential nominee futures right now if you want to make a determination where the actual money bets are going right now.  McCain is priced at $93.00 and Romney is now priced at $1.90, so this would indicate a 92.9% probability of a McCain nomination.  The Democrat race is much closer right now with Tradesports showing a Hillary Clinton nomination with a $54.60 price (down $8.40), and Obama with a $47.40 price (up $8.90).  So the futures are showing a McCain essentially as a shoe-in now, yet the Democrat race is still too close to call.  Guess what, this would be a win-win for stem cell research beyond this year.