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| I am really not ancient, but sometimes I feel along those lines as over the years I have somehow investigated and/or dealt in a lot of areas. Part of it is growing up in bad times on the farm & knowing that in order to succeed, as I really had no prospects or special qualifications, I had to focus on a lot of different avenues to make some kind of a future. Yes. I watch energy.
Depending on whether you are in for the long pull, I think energy is good & like everything else, need to buy it right. In regard to crude, the Crack spread (5 crude oil versus products: 3 gasoline, 2 heating oil) is a big factor; the crack spread is an approximate estimation of the gross margin earned in refining a barrel (42 gal) of crude oil. Some examples, during the week ending August 31, 2005 it was $16.01, August 31, 2006 it was $22.78, December 31, 2007 $12.30 & on the 15th of this month, $9.99 per barrel. The traditional energy companies earnings will roughly track the crack spread. Lately, it has not been very wide.
There was an exceptional amount of enthusiasm for ethanol & bio-products & now ethanol is getting a lot of bad press. In fact, it is difficult to find any positive press.
I told my friend in Palm Springs the other day, since he has access to large financial sources he ought to sell this property he has in Jamaica, as development is extremely high risk & should instead look at picking up an ethanol plant during this possible shakeout period. He is initially cool to the idea as he suddenly has become an expert telling me how ethanol has no future & is a good example as how people think. I told him, if he thinks he is an expert why didn’t he buy some corn last August when I told him to & why is he even asking my advice now. Experts don’t need advice. We won't talk for a few days, but he will get over it.
Like all industries, projects begin with great enthusiasm, things happen & always happen, count on it, the industry sees a slump & you have a shakeout period. When I see companies like ADM involved, all of the ‘worry willies’ can continue to worry as far as I am concerned..those types of folks have immense political power & long term strategies.
It boils down to (1) facilities & (2) management; in the long time scheme of things, we spent years exporting huge quantities of bulk grain to various countries and now they are importing more meat & other foods; same for cattle feeding. I remember the big shake out there & will not mention names here, but I know some folks walked in with virtually no investment and picked up the pieces from lenders who figured they were stuck. Profitability is the key & the grain industry is very specialized and not easy for a lot of folks and experts to understand. I think a lot of the analysts & initial investors forgot grains do have the occasional bull market & having the expertise in place is/was essential. Instead of learning to just hedge grain, they have to understand how to also hedge ethanol, possibly energy & market DDGS. It can be a challenge I am sure. You can’t learn grain marketing from a book any more than I could plant a corn crop. I knew as a youngster, but I’m not sure I would even know where to put the seed in some of these new rigs.
The distribution will be worked out. It will all shake out and in a few years, we will again be scrambling for energy even more so than now; I don’t see Americans commuting 30 & 40 miles a day on bicycles & it is going to be a difficult sell to get these soccer moms’ out of these big SUV’s. I don’t know too many modern households where the husband will suggest the wife take the three children to school and to other functions in a dinky little Yugo; the chances are greater the husband will be taking the bicycle.
Our country is unique compared to a lot of the rest of the world & when the chips are down, in crisis situations it seems we all come together; when Nixon legalized gold ownership & closed the gold window, a lot of folks thought we were headed into the tank & everyone knows this entire world is held together with worthless paper, and some day it will come to a halt, but I don’t think we are at that point in time. Companies today are very, very efficient as compared to some of the fat and waste I remember in the sixties & seventies.
As a side note, in the introduction of this Gabby Hayes & John Wayne set of DVD's...Gabby, early in his movie career had all of his teeth extracted so he could play his character to the fullest. I call that commitment. My next favorite is Walter Brennan but have not seen any of this stuff for sale.
Edited by SeniorCitizen 1/18/2008 21:44
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Energy Stocks - Senior Citizen?
