Agora Financial’s Rude Awakening

Houston, Texas

• Saddle-up for the Offshore Technology Conference in Texas,
• Oil soars to a new record and gold grabs a few more dollars,
• Debunking a few misconceptions about commodity investing and more…

Eric Fry, reporting from Laguna Beach, California…

While your editor and several of his colleagues were hanging out at the Value Investing Congress in Pasadena, California earlier this week, Byron King, editor of Outstanding Investments, was making the rounds at the Offshore Technology Conference in Houston, Texas.

Throughout the week, Byron has been sharing the highlights of the conference with his subscribers. Allow us to share the highlights of Byron’s highlights:

“I’m down in Houston, attending the Offshore Technology Conference (OTC). And I have to tell you, this conference is just spectacular. Yes, everything is big in Texas. But the OTC takes big to a new level. The place is crowded, with about 75,000 people from every corner of the world. I’ve heard people speaking a wide array of languages, from Norwegian to Arabic, Chinese to Urdu. The exhibit area exceeds half a million square feet. Is that big enough for you?

“The OTC is living proof of how vast the modern energy industry is. The offshore energy industry spans the globe, from the traditional near-shore oil patch to the wildest stretches of hostile and deep water. Many of the exhibitors are grouped into national pavilions.

“This is not a U.S. show, by any means. Check your flag at the door. The OTC has pavilions for companies from the United Kingdom, South Africa, Brazil, Germany and many other nations.

“A lot of Norwegians are also in attendance. Norway has many outstanding firms that set world standards in the offshore business. (After all, the Norwegians have been drilling in the treacherous North Sea for 60 years or so). One company is StatoilHydro, a recent merger of the state oil company Statoil and Norsk Hydro. At the OTC, StatoilHydro received an award for its work in developing a massive gas field in the North Sea, called Ormen Lange.

“I mention this field because it represents the future of oil and gas production worldwide – a future in which reserves are increasingly difficult to access and increasingly costly to develop.

“Ormen Lange lies under waters between 2,500-4,000 feet deep. Statoil drilled 24 wells to recover 70 million cubic meters of natural gas per day and pipe it all dozens of miles ashore to a facility in Norway. Then the gas gets piped through a 48-inch pipeline under 725 miles of North Sea to Britain. Easy, right? Ummm. No.

“Everything about Ormen Lange is big and impressive. The water is deep. The drilling is difficult under the furious North Sea. The bedrock geology is tricky. Producing gas requires complex machinery be installed on the seafloor. There are long pipe runs, with some pipe lying on the seabed at 35 degree angles.

“Moving the natural gas to England is a world-class feat in and of itself, through the longest subsea pipeline in the world. As I said, it is big and impressive. And I have to add, expensive. How much? OK, billions. If you have to ask, you probably can’t afford it.

“Still, in the global scheme of things, Ormen Lange is just one project in this world. And there are dozens more like it in the offshore realm. The capital expenses for new energy projects are gigantic. Everything costs big bucks now. Prices are rising for steel, cement, equipment, machinery, cost of capital, labor (if you can find trained labor). The numbers are mind-boggling. How mind-boggling? In one talk, our buddy Matt Simmons mentioned it will cost $100 trillion over the next seven years to fund the energy projects the world needs.

“That’s really what Matt Simmons said: $100 trillion over the next seven years for energy projects. That’s more than the GDP of the United States for the next seven years combined, just to pay for energy projects. The good news is that the $100 trillion number pertains to the whole world, so the U.S. will not have to foot the bill alone. The bad news is that the U.S. will have to foot a lot of that bill, because much of the energy supply of the future will be destined for the U.S.

“Maybe Simmons is off target and the world will only need to spend $80 trillion over the next seven years. But one thing is clear, especially to anyone who strolls the vast rows of exhibitors at the OTC, spending on oil exploration is about to skyrocket. This trend should create numerous investment opportunities for vigilant investors.”

However, as Jim Rogers explains in the column below, the oil and gas industry will not be the ONLY commodity sector to produce exciting investment opportunities over the coming years. Read on for the details…

[Editor’s Note: We’ve recently learned that Jim Rogers has been confirmed as a keynote speaker at the Agora Financial Investment Symposium to be held in Vancouver in a couple of months. If you’ve been considering grabbing a ticket to the hottest commodities conference of the year, now’s the time to get in.

Last year we were packed to the rafters and this year is set to be even bigger, especially now that Rogers has been confirmed.

Grab Your Seat Here Before They All Sell Out.

—- Investing in the Era of “Peak Everything” —-

Oil hit a new record high… Gas could soon be $4 a gallon… silver, wheat, corn, you name it — all the “resources” of daily life are soaring in price!

Yet there’s a way to protect yourself and profit in the days ahead…

Join Us in Vancouver in July for an Exclusive Look at… 

A View From The Peak : Seeking Profits in a Time of Risk and Scarcity .  

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Safer Than Yahoo, Much Safer Than Enron
By Jim Rogers

One time at a party in Manhattan, I mentioned that I had been talking to various groups in the United States and Europe about investment opportunities in the commodities market. Before I could get out one more word, a woman interrupted me. “Commodities!” she exclaimed, with the kind of incredulity in her voice that Manhattanites usually reserve for people moving to Los Angeles. “But my brother invested in pork bellies and lost his shirt. And he’s an economist!”

Everyone seems to have a relative who took a beating in the commodities market, and this fact (or fiction) is considered sufficient reason that no sane person would ever risk playing around with such dangerous things. That this particular victim was also a professional economist made the warning seem even more ominous. I, however, couldn’t help laughing.

Billions of dollars are invested in the commodities market every day. Without the commodity futures markets, many of the things that you depend on in life, from that first cup of coffee in the morning to the aluminum in your storm door to the wool in your new suit, would be either scarce or nonexistent, and certainly more expensive.

There are several other bromides out there for why “ordinary people” should not invest in commodities, and I want to lay these myths to rest, once and for all, so that we can get on with the more interesting business of how you can begin to make some money investing in the next-generation asset class.

About That Relative of Yours Who Got Wiped Out — He was inexperienced. You can learn. Most likely, he was buying on thin margin — the minimum deposit a broker requires to take a position in a particular commodity — and when the market went against him he lost big-time.

Here’s how it happens: Like stocks, commodities can be bought on margin. Unlike stocks, however, where by law you have to put up at least 50 percent of the price of the shares, the margins on commodities can be even lower than 5 percent: You can buy $100 worth of soybeans for $5. If soybeans go up to $105, you’ve doubled your money. Beautiful. But if soybeans go down $5, you’re wiped out. Not so beautiful.

Experienced, smart speculators can make tons of money buying on margin. They also know that they can lose tons, too. But they can usually afford it. Your relative was in over his head. If he had bought $100 worth of soybeans in the same way that he can buy IBM — for $100 (or maybe even $50) — he would be happy when it goes up $5, but not wiped out when it goes down $5.

Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history, you’ll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in
80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet — and prices in the commodities market still went up.

In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor — and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.

When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn’t enough, prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day
long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.

Tell me again about all those Cisco shares you owned back in 2000. Or JDS Uniphase, or Global Crossing? So many risky stocks made the turning of the new millennium a not-so-happy time for many, who watched their portfolios evaporate.

If you do your homework and remain rational and responsible, you can invest in commodities with perhaps less risk than playing the stock market. Let me point out something that you might not have realized: There has been more volatility in the NASDAQ in recent years than in any commodities index. Cisco, Yahoo! and even Microsoft have been much more volatile than soybeans, sugar, or metals. Compared with the risk record of most tech stocks, commodities look safe enough to be part of any organization’s “widows and orphans fund.”

And let me remind you of one more important difference between commodities and stocks: Commodities cannot go to zero, while shares in Enron can (and did).

[Joel’s Note: Earlier this week your junior editor had the pleasure of seeing our own commodities guru, Kevin Kerr of the Resource Trader Alert, deliver a presentation at a mega-fund investors conference here in the UAE. The experience was made even better when we discovered that everyone else in the room has coughed-up $10,000 to attend the function. (Nothing tastes quite as good as free beer, as we all know.) 

Thankfully, you don’t have to be running a ten- or twenty-million dollar fund to avail yourself to Kevin’s commodity market insight. And you won’t have to shell-out $10,000 and fly to Abu Dhabi to learn the secrets behind amassing a portfolio of winners the way he has. In fact, for the next four days Kevin has agreed to offer a special “Guest Pass” to what he calls the World’s Most Secretive Millionaire’s Market”.

We can’t hold this offer open for long, not while people are lining up to pay $10,000 per ticket to see him speak. If you’re interested, you can grab your own Guest Pass Here.

—- Kevin Kerr’s Resource Trader Alert Special Invite —-

For the next 4 days, an ultra-rich trading expert now offers you…

A Behind-the-Scenes “Guest Pass” to Profit in the World’s Most Secretive”Millionaire’s Market”

Beginning tomorrow at 7:10 a.m. EST, you can use your “guest pass” to go behind the scenes in the financial community’s best-kept secret: the “Millionaire’s Market.”

Once inside, you’ll have a chance to legally “withdraw” $810 or more per week — and you’ll be able to deposit the money directly into your retirement account! Click Here For Your Guest Pass.

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[Rude Endnote: You’ll find the markets open this morning with the Dow at 12,866.78, up 52.43 in yesterday’s trading, while the S&P 500 will begin the session at 1,397.68 after edging up 5.11 points.

A dollar buys 0.6467 euros and 0.5132 British Pounds.

And in the commodities corner, oil rallied hard to cross and close above the $125 mark while gold grabbed another $6 to rest around $888.

Until next time…

Cheers,

Joel Bowman
Rude Awakening