|Dow||-53.72 to 18,232.02|
|S&P 500||-4.75 to 2,126.07|
|Nasdaq||-1.42 to 5,089.36|
|10-YR Yield||+0.03 to 2.22%|
|Gold||+$0.90 to $1,205|
|Crude Oil||-$0.88 to $59.80|
The energy torch is being passed – from coal to gas!
Two stories this week make that abundantly clear. And as an investor, it opens up all kinds of new opportunities!
First, the Wall Street Journal reported today that Murray Energy Corp. will let 1,800 workers go at nine separate mines in West Virginia and Ohio. The firm has spent billions of dollars over the past few years to buy up weaker competitors. But now the debt that funded those acquisitions is bearing down on the country’s third-largest coal miner.
What’s more, Murray’s move follows layoffs at Alpha Natural Resources (ANR), two bankruptcy filings in two years at Patriot Coal Corp., and turmoil at Arch Coal(ACI). ANR and ACI now trade for less than a buck, versus more than ten bucks a few years ago.
Second, in a little-noticed item on Tuesday, the nation’s largest U.S. power company announced a $1.1 billion spending plan. Duke Energy (DUK) said it would shutter a 376-megawatt, coal-burning power plant in western North Carolina. It will simultaneously spend $750 million to build a gleaming new 650-megawatt plant that burns natural gas instead. Another $320 million in spending will be required to upgrade transmission networks in the region.
The shift isn’t just happening in the foothills of North Carolina and the coal seams of Appalachia. Power companies nationwide shut or switched over roughly 4,100 megawatts of coal generation last year. That’s on track to more than quadruple to 22,100 this year, according to Thomson Reuters, as a result of regulatory pressure and environmental concerns.
|“All kinds of new markets for U.S. gas will be opened up.”|
Coal now produces only 40% of the country’s energy, compared with almost 50% several years ago. Meanwhile, electricity producers are expected to consume 13% more nat gas this year than in 2014. Those gains should only get larger as more and more producers make the switch.
There’s been a lot of talk about a glut of gas in this country. That’s why the fuel’s price recently sank to around $2.50 per million British Thermal Units (BTUs) from around $4.50 this time last year.
But nat gas rig activity is now plumbing all-time lows. Demand from power companies is picking up. Plus, several natural gas pipeline, liquefaction, and export facilities are in the planning, permitting, and construction process right now. As those facilities come on line in the next few years, it’ll open up all kinds of new markets for U.S. gas.
|Are natural gas profits in the pipeline?|
Result: I think the prospects for gas production, processing, shipping, and export companies are getting better by the day. Even better, they still remain dirt cheap because of all the ridiculous skepticism on Wall Street about energy prices.
So you might want to give investments like the First Trust ISE-Revere Natural Gas Index Fund (FCG) or the Market Vectors Unconventional Oil & Gas ETF (FRAK) a look.
In the meantime, let me know your thoughts. What do you think is driving the great torch passing? What does it mean for coal and natural gas pricing and stocks over the longer term?
Do you have any favorites in this sector, or are you looking to get involved? Anything that can derail the shift in your view? Here’s the link to the Money and Markets website where you can weigh in.
|Our Readers Speak|
What can be done to clean up the banking sector, and make it so bad behavior and billions in fines aren’t going to haunt us until the end of time? Several investors shared their thoughts on the website overnight.
Reader Lionel L. said: “The Feds get all the fines. The ones that got ripped off don’t get a cent for their losses. An individual can’t take on the big banks, with their millionaire lawyers who will stall and stall until the individual is financially wiped out.
“The Feds should reimburse the individuals from the fines they take in. Maybe Congress has to pass a law to that effect. The trouble is that Congressional members will get paid off not to pass such a law.”
Reader Aatal said: “Unless someone at the top in these banks and financial institutions goes to jail, nothing is going to change. It seems like they make $20 billion with these kinds of things, pay fines of $6 billion – that’s still $14 billion in profits. They will do it over and over again. Who wouldn’t?”
In response, Reader Lauren said: “Trouble is, the feds and the TBTF institutions are one and the same. The greatest threat to American freedom, the American way of life, and financial independence is the federal government. And that’s both Democrats and Republicans.
“The feds regulate you and me. But when it comes to themselves or their partners in legalized crime, they simply create smokescreen diversions to keep the public from seeing things for what they really are.”
Finally, Reader Books said: “Where there’s money and power, there’s bound to be crookedness. Herein lies the problem: The younger generation doesn’t have future pensions, and must save for their future. The present retirees must save and invest, hopefully in something safe to stay alive for the next 20 or more years.
“It seems the banks are crooked, the interest rates low, the stock market can’t be trusted, the bond market is wavering – what the heck are average people to do? If possible, have your house paid off by retirement. At least you’ll have a roof over your head, as long as you can pay the ever-rising property taxes.”
Thanks for all the comments. It is amazing to me that we haven’t seen more perp walks, more execs booted out of office, and other real pressure applied given all the shenanigans of late. But maybe it shouldn’t be, given how many government officials look forward to cushy, well-paid jobs in finance after they put in their few years of civil service!
Please do continue to share your thoughts on this important topic over at the website, which you can access here if you haven’t already.
|Other Developments of the Day|
ISIS is consolidating its hold on the Syrian city of Palmyra and Iraqi city of Ramadi, executing enemies and prompting tens of thousands of residents to flee. The conquests are just the latest example of how our Middle East policy is in shambles, and failing to produce results.
The Greek debt shenanigans are continuing over in Europe, with a meeting between the heads of Greece, Germany, and France overnight achieving little. Euro-zone and IMF officials continue to debate pension, labor, tax and privatization issues with Greek policymakers, even as the country desperately needs billions of dollars in additional bailout funds.
Stop me if you’ve heard this before: Overzealous government regulation designed to prevent one set of problems is now creating new ones! That’s the worry in the financial industry, according to this Bloomberg story.
It notes that tighter lending standards at large, regulated banks have driven many companies to seek out financing from loan funds and non-regulated lending companies. Those “direct lending” funds and “business development companies” use bank credit lines and institutional investor money to finance their loans, rather than more stable depositor funds.
That means they could see their financing dry up in a hurry in a future financial crisis. Or in other words, the seeds of the next crisis have been sown by regulations designed to prevent a recurrence of the last one.
If you’re looking to challenge your kids or grandkids to a game of Scrabble, you better familiarize yourself with the slang they use! That’s because 6,500 new words have been added to the official Collins Scrabble Word List — and many of them will sound alien to you if you don’t know how grade school and high school kids talk and text these days.
A few examples: Twerking, hacktivist, ridic, hashtag, cazh and newb. Fortunately, I have 9-year-old and 12-year-old daughters, as well as a 16-year-old stepson. That should give me a leg up on the competition!
Fed Chairman Janet Yellen gave a speech in Rhode Island about the economic outlook, saying that conditions are generally improving in the labor market, but that not enough progress has been made. She sounded relatively optimistic, but also cited several threats from the downturn in oil investment to the stronger dollar to weaker foreign growth. But on net, she believes the Fed should hike interest rates for the first time in the past several years in 2015.
Want to comment on these stories? Or others I didn’t cover? Then head on over to the website here and add your thoughts today!
Until next time,