Customer Service 1 (888) 261-2693
Advanced Search

The Commodity Investor Q&A

By Matt Badiali, editor, S&A Resource Report
Wednesday, August 5, 2009

For weeks, I've been writing about cheap natural gas, which a lot of you like as a cleaner alternative to coal. But when I asked about other "green energy" options, I found quite a few cynics in the Q&A crowd...
 
Looks brown to me... – M.L.
 
I love green, but it is a load of hogwash!! – R.K.
 
Personally I wouldn't touch wind and solar with a pole. – D.D.
 
Reader D.T. is more open to alternatives. He writes, "Fossil fuels are finite while renewables are constant, abundant, and underutilized to such an extent that the boom will be fabulous."
 
Like most of you, I'm skeptical of wind, solar, and hydro energy. But I think D.T. has it partly right: A huge green energy boom is coming... whether we like it or not. It's coming because your government says so.
 
Take California, whose politicians decreed the state would produce a third of its power from renewable sources by 2020. That means alternative-energy supplies need to increase by 135%... at a cost of more than $44 billion. California is just one of 32 states (and Washington D.C.) that set minimum requirements for renewable-energy sources.
 
The simple fact is it costs about $1.5 million per megawatt to build a new natural gas power plant. It costs about 266% more for solar or wind.
 
So the U.S. Treasury will provide construction grants for up to 30% of the cost of alternative-energy projects breaking ground by the end of 2010. Not to be outdone, the Department of Energy set aside $10 billion to guarantee construction loans needed to build the plants.
 
That combination of laws and incentives looks a whole lot like the foundation for a huge green energy bubble. Look for more on this trend next week.
 
Q&A Update: Last December, I warned reader D.F. that commodity giant Teck Resources was a trap, arguing its earnings were headed for a huge drop.
 
In April, I told W.D. that Teck had made all the wrong decisions during the commodity boom.
 
And in May, I advised reader G.H. to steer clear, citing Teck's massive debt coming due.
 
Here's a look at Teck's chart:
 
 
Teck Resources (TCK) One-Year Chart
 
What happened? Well, Teck earns one-third of its revenue from copper sales. And the biggest surprise in commodities this year is copper.
 
The world's largest economies went into recession. Manufacturing orders plummeted. Plants and factories closed down all over the world. That sounds like disaster for basic resources... But the price of copper defied logic.
 
The red metal's uptrend began in December, and it's doubled over the last eight months. Copper's updraft was so strong, even a turkey like Teck soared.
 
But at the risk of being wrong for another eight months, I wouldn't try to capitalize on the trend now. Copper's run is getting long in the tooth... and Teck's fundamentals still stink.
 
Good investing,
 
Matt




In The Daily Crux
Market Notes
Aluminum hits eight-month high... up nearly 50% from February bottom.
 
Bellwether machinery maker Caterpillar jumps 6% to nine-month high.
 
Dollar weakness drives silver up 15% from July low.
 
Earnings today... Cisco, Polo Ralph Lauren, Procter & Gamble, Prudential, Sunoco.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

Recent Articles