MoneyNews
Friday, Sept. 9, 2005

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1. Oil Plentiful, Getting Cheaper

The oil pricing yo-yo seems to be unraveling a bit, as oil futures continue to drift downward after a few weeks of marked price upswings.

Over the past few days there had been hopeful signs that gas prices would be falling - if only by a few pennies. But now comes news from the oil futures market that stabilizing inventories could send oil prices plummeting even further from their September 8, 2005 lows of $63. That's down from the $70-plus highs the oil markets saw on August 30 - just as Katrina was smashing into the southeastern United States.

Oil futures dropped as low as $63.10 a barrel Thursday before rebounding on news of a report showing a smaller-than-expected drop in petroleum stockpiles following major disruptions in the wake of Hurricane Katrina.

At the same time, U.S. light crude for October delivery was down 42 cents a barrel to $63.95 on the New York Mercantile Exchange, having fallen more than $1 immediately after the government report.

Gasoline futures also tumbled immediately in the wake of the report, down by as much 9.5 cents from session highs on the NYMEX to $1.97 a gallon. But they rebounded to trade just a fraction-of-a-cent lower at $2.02 a gallon - still about a nickel off the day's peak.

Crude stocks fell by 6.4 million barrels, gasoline stocks fell by 4.3 million and stocks of distillates decreased by 800,000, according to the Energy Information Administration.

Analysts were looking for a drop of 6.4 million barrels of crude, 6.2 million barrels of gasoline and 2.6 million barrels of distillates, according to Reuters.

Despite the larger-than-usual dip caused by Hurricane Katrina, crude supplies remain well above the upper end of the average range for this time of year, the EIA said.

But gasoline stocks are below the bottom level of the average range - at their lowest since November 2000.

Doug MacIntyre of the EIA said gasoline stocks may have come in above estimates because people were expecting the worst following the storm.

MacIntyre also said many people forgot that, in addition to refineries being shut, pipelines were also out of operation.

"There was a lot of product that just didn't have any place to go," he told CNN Money.

The slide in crude prices continues the trend of the last several days.

Oil has now lost more than $6 since hitting an all-time trading high of $70.85 on NYMEX Aug. 30th - the day after Hurricane Katrina enveloped the Gulf Coast, killing hundreds or perhaps thousands, flooding New Orleans and causing widespread destruction in Louisiana and Mississippi.

Hard hit were oil platforms and pipelines in the Gulf of Mexico, as well as refineries onshore. The Gulf accounts for one-quarter of all U.S. domestic oil production and has the country's only deep-water port for oil imports.

The Department of Energy said 57% of oil production in the Gulf of Mexico was still offline as of Wednesday, although that is an improvement from 95% the day after the storm.

DOE estimates that fuel production and distribution in the area won't be back to normal until December.

The DOE also announced that four of the 10 refineries impacted by the storm remain offline, and MacIntyre said that based on experience from a previous storm, people were expecting a three-month shutdown for recovery from Katrina.

Prices have fallen over the last several days as refineries have come back online sooner than expected, and the International Energy Agency (IEA) released around 60 million barrels of product from the reserves of its 26 worldwide members, including 30 million barrels of crude from the U.S. Strategic Petroleum Reserve.

But traders were keeping an especially careful eye on the gasoline component of the report. That's because most of the reserves from IEA come in the form of crude, and the storm worsened an already tight supply of refined products worldwide, helping to push U.S. gasoline prices up over 65% over the last year.

Gasoline prices hit consumers directly and can limit their spending, which accounts for two-thirds of U.S. economic activity.

Economists warned Wednesday that the economic fallout from Katrina could cost 400,000 jobs and shave up to 1% off the country's gross domestic product in the second half of 2005, due in large part to rising energy prices.

Editor's Note:

• You'll be shocked to discover how the blatant political manipulation of the Consumer Price Index and other official government figures is wrecking our economy and YOUR finances. Learn the top 5 ways you can protect your wealth right now. Get your free copy of FIR's "The Inflation Lie."  Go here now.

2. Expert: Gold Top Buy for '06

There could be gold in your future - if you agree with some market observers that hard currencies are the place to be as the election season of 2006 draws nearer.

According to Monty Guild, founder of Guild Investment Management in California, the fact that the entire House of Representatives and one-third of the Senate are up for re-election in November 2006 means that the incumbents are already giving away as much as possible to buy votes.  

Guild says that the first phase will be cash giveaways that will serve as damage control for the poor federal response to hurricane Katrina. 

"Congresspersons and senators are part of the federal bureaucracy," says Guild.

"Although they represent individual districts that may be far from the hurricane's impact, they are afraid of being swept from office by a general national feeling of disappointment that the federal government was slow and inefficient in responding to the disaster. It would not be the first time that the electorate exhibited disdain for incumbents in general."
  
The second phase, Guild adds, will be the traditional local giveaways to all kinds of voter blocs. The federal highway bill that recently passed will go a long way in helping to create jobs, and a major effort will soon get under way to keep the housing market from imploding before the election. Both of these projects will add massively to the federal budget deficit.

"We can expect pressure on the Federal Reserve to not raise interest rates, even though the economy is going to get a boost due to the hurricane rebuilding efforts - enough to counteract much of the economic slowdown caused by high oil prices," Guild says. 

"We also expect unwise and ineffectual (but politically expedient) verbal attacks on the oil industry, oil pipeline industry and the oil refining sector, blaming them for high gasoline and home heating oil prices. Before it is over, the politicians will have shifted as much blame as possible for their generally ineffectual administration to as many others as they can."

"In my opinion, the world financial markets are too smart to buy this generalized idiocy," says Guild.

"Unfortunately, the electorate may not be that smart. The financial market participants know that overspending, expensive waste and general bad planning have led to the current problems in the U.S. They know that you must measure a country by its financial performance, its trade balance, balance of payments and current-account figures. The U.S. has failed in these departments."
     
Guild concludes that the market participants will, like refugees everywhere have done for many centuries, vote with their feet.

In this case, voting with their feet translates to buying less U.S. debt and fewer U.S. dollars. Investors will shift into other currencies such as gold, the Canadian dollar, the euro, Swiss franc, British pound and others.

"Gold shares will benefit more than gold itself because they are, as operating entities, leveraged," says Guild.

"Once their cost of goods sold is exceeded, they are able to allocate revenues to cover corporate overhead, interest, debt service and taxes. After adding back certain line items like depreciation, cash flow is available for expansion of their capital budget and, thus, expansion of their business enterprise."
  
And investors should be prepared to practice some serious due diligence on their own, Guild adds.

"As an analyst, it is extremely time-consuming to examine the financial statements of many small gold operations. This is because many of the important issues are not obvious from a first-level examination of the statements. Discussions with management and the accountants may be necessary to understand the accounting conventions that are employed."

Editor's Note:

• A select group of investors are making 43% to over 400% returns in just a few years on gold and other select commodities. Get your free FIR special report on the new commodities bull market. Go here now.

3. Extraordinary Opportunity in Telecom

The era of Internet telephony has taken off and now poses a real threat to the fixed landline telephone systems that we grew up with over the years.

What's more, the growth of the Internet has delivered a fresh challenge to traditional telephone providers such as BellSouth, Verizon and SBC Communications. A new and cheaper way of making phone calls from your home marks the next wave of attacks on the revenues of telecom providers. 

VOIP, or voice-over-Internet protocol, enables broadband Internet users to install a tiny piece of software into their home computer, converting their desktop into a phone and messaging service. The huge plus is that this online technology comes at a lower cost than traditional calls, regardless of the distance between two users

Given the projected surge in revenues from online telephony, we're betting on one sector to take the lion's share of the business - and it WON'T be telecom or VOIP providers.

Rather, it will be a small group we like to refer to as "arms dealers."

We're talking about companies like those from the days of the gold rush - the ones that sold the picks, shovels and clothing to the miners. It's companies such as these that will snag the real profits.

FIR's SectorTrade service just sent out an urgent Trading Alert yesterday advising investment in a basket of small, cutting-edge companies that are perfectly positioned to profit from the new VOIP gold rush.

It's a locked-in profit trend and we want you to be a part of it.

Get a copy of this latest alert in the next five minutes.  Go here now. 

4. Web Telephony: eBay's Masterstroke?

Shares in online auctioneer eBay slumped Thursday as investors balked at the company's bid to purchase Skype Technologies, an Internet telephony firm whose potential price tag has been estimated to be as much as $5 billion, according to various media outlets.

However, these sources do not provide the origins of that number - which could be twice as much as any actual finalized deal.
 
Meanwhile, news of the buyout saw investors raising their eyebrows, as it is clear that several sold stock in eBay following the story.
 
Of course, eBay is known for its ongoing ability to grow revenues. One lucrative method is acquiring other online businesses and integrating their customers into eBay's own core operation.
 
However, the distinctly different flavor of Skype's Internet telephony shook investors' faith in eBay.
 
Why would the massive online auctioneer make such a strategic shift - and does this mean that growth in core auction activity is slowing?
 
Most of the media greeted yesterday's revelations regarding the move with only a negative spin. But this week's issue of Business Week sees the events in a different light.
 
"Skype's trademark computer-to-computer calling would let eBay's buyers talk directly with sellers, and customers could also use the technology to take part in auctions live, calling out bids vocally," the BW article reports.
 
Skype Technologies is based in Luxembourg and apparently handles 36% of all web-based phone calls in the United States.
 
Skype is adding an incredible number of customers each day. Currently some 52 million users have downloaded the complimentary software that allows them to speak for free over the Internet to other Skype users.
 
A deal might allow eBay to continue to grow its customer base. And by entering the online phone war - which is in its infancy - now, eBay may be effectively pulling the rug from under the feet of both Google and Yahoo!, which both have their own telephony ambitions.
 
Business Week adds: "Skype had already opened up its code so developers of various video and other services can incorporate the service into their applications."
 
And even more recently, Skype announced that it would allow any of its content providers access to its 52 million users. Business Week reckons this move will spawn a proliferation of content and devices.
 
Skype has enlarged its own operations in China and Germany and is also working with global chip leader Intel to make chips that are imprinted with Skype technologies.
 
All things considered, eBay's offer for Skype hinges on more than just a price tag.

MoneyNews has just released our latest sector investing report detailing five new locked-in profit trends that we predict will be the big winners in the next six months. We're talking gains of 25 to 50% or more. Get a copy of this report now.

Editor's Notes:

• Blatant political manipulation of the Consumer Price Index and other official government figures is wrecking our economy and YOUR finances. Learn more. Go here now.

• Some are making 43% to over 400% returns on gold and other select commodities. Get your free FIR special report on the new commodities bull market. Go here now.

• Get five new locked-in profit trends that we predict will be the big winners in the next six months. We're talking gains of 25 to 50% or more. Learn more.

• Today, brain disease (Alzheimer's, Parkinson's) is rampant. And it will only get worse. Discover a way to protect yourself - immediately. Learn more.