Investing in Energy

Over the next 10 years, there are 2 sectors that stand out to me among the rest: Technology and Energy.  Today I will be focused on energy and why you should be in it. 

First, the world needs energy, and as countries like China and India become more industrialized, the world is going to need a lot of energy and fast.  There is no better way to play this than to buy oil companies.  Oil already sells for $100 a barrel, and will soon sell for much higher. 

To get the actual oil producers, you cannot go wrong with ExxonMobil (XOM), ConocoPhillips (COP), or Chevron Corporation (CVX).  Theses stocks are all attractively priced, with P/E's under 9 and Forward looking P/E's under 7.  There dividends range from 3 to 4%, and they have stable and growing demand for their product.  These stocks are great long term buy and hold stocks, but it is important to keep an eye on the news to make sure your oil stock does not suffer a BP-like disaster.  If it does SELL.

Another sneaky play right now is in oil rigs.  Because of what happened to the Macando well in the Gulf, investors have been avoiding these stocks with the plague, but with little reason.  These companies are undervalued and can pay dividends in upwards of 6 to 8%.  I am talking about Transocean (RIG) and Seadrill (SDRL).  Both companies are indeed risky, but their upward potential is off the charts. 

Disclosure: I own XOM

An Idiots Guide to the Europe Debt Crisis

The news keeps being dominated by the European debt crisis, but very few people actually know what is going on.  I will attempt to explain whats going on in Europe in a way that everyone can understand.

Ben Bernanke

Let's start with the United States.  In the US, we have the Federal Reserve, which saved us from complete financial collapse in 2008.  The Federal Reserve is run by Ben Bernanke, who is going to be referred to as the US Financial Mob Boss from here on out.  Since the US is one singular entity, our Financial Mob Boss was able to act swiftly in an effort to save us.  Not so in Europe.

Europe has something similar to the Federal Reserve, but since there are many countries in the European Union, it takes to long to get everyone in agreement on a potential rescue package.  This renders the European Financial Mob Boss useless.  Since the US Mob Boss is the only way we survived the crisis, what is Europe going to do?

The problem is that European countries have been living way outside their means.  Lets pretend that you are Greece, and you make $100,000 a year (good for you!).  Unfortunately, this is not good for you because you spend $500,000 every year.  To make up the $400,000 difference, you ask your neighbors to loan you money.  You do this for 50 years.  Eventually, the people will ask for their money back, but you are going to have to say "sorry, I don't have your money."  This seems crazy that Greece could let this happen, but they did and it is now all of our problems. 

Merkel and Sarkozy

Currently, Germany and France are in robust financial conditions, and are able to prevent Greece from defaulting based on their own bailouts to Greece.  Germany is led by Angela Merkel, and France by Nicolas Sarkozy, and they are really the only two people who have the power to divert this crisis.  A Greek default would send shock waves through the European system as people would doubt the monetary ability of the Euro.  Greece is one of the smallest economy's in Europe, so the media made this out to be a bigger deal than it actually was.

A much bigger issue is Italy, which is the 3rd largest economy in Europe.  Italy is too large to fail, but also too large to bail out.  This has epic disaster written all over it.  Let's pretend we are climbing up an icy mountain.  France and Germany are the leaders, and are very experienced climbing mountains.  Most of the EU countries aren't great climbers, but they can pull their own weight.  When climbing a mountain, generally all the climbers are strapped together so if someone falls they don't automatically fall to their death.  Everyone is strapped together, and Germany and France are leading the way up the mountain.  Then there is Greece at the end.  Greece is a small child, which is dangling at the end of the rope.  The child is doing nothing to help climb up the mountain.  While not ideal, this is okay, since Germany and France can easily keep climbing with the dead weight hanging at the end.  Now let's add Italy at the end.  Italy is a 1,500 pound sumo wrestler, who is currently pulling his weight climbing up the mountain.  There will come a point in the near future that Italy will reach the point of no return, and just let go of their ice pick.  Germany and France will instantly feel the weight, and will immediately dig their ice picks into the side of the mountain and hold on for dear life.  Unfortunately, the weight of Italy is too strong, and the leaders lose their grip and everyone starts free falling down the mountain.  There is no way to save them once this starts happening. 

This is the dangerous path that we are on right now, and we need to do everything in our power to make sure that Italy does not take down all of Europe with it.  The scary part here is there are no real solutions to this mess.  2012 is going to be a wild ride for investments.  I think that the market might do well in the short term, but after the holidays, I could see the market going down like we have never seen before.  If you have any gains at that time, it may be wise to sell and ride this coming crisis out.

Life Lesson #1.5: The Weather in Depth

I have been taking a lot of grief that the weather system explained in the previous post is too simple.  I would like to reiterate that Brisk, Mildly Brisk, Balmy, and Steamy and the 4 main categories.  There are actually 20 subcategories within the main categories, which will be explained here.

Let’s start with Brisk, where there are 5 subcategories.  In this new weather universe, it is appropriate to start by saying it is "brisk" or it is "mildly brisk."  However, if someone asks for clarification, then you give him or her the subcategory the weather falls into.

1. Arctic: This is as brisk as it gets.  We are talking temperatures less than -40F.  Even the North Pole rarely sees arctic conditions.  The only time arctic should ever come into play is if you can get hypothermia if you are outside for less than a minute or if you live in Minnesota in January.

2. Glacial: Used when the temperature is between -20F and -40F.  This is not the ideal weather to be having a picnic with the family.  Generally, if you wake up in the morning and someone says it is glacial today, you usually let out a few expletives and go back to bed.

3. Frigorific: We have progressed 40F warmer than arctic, and this is used when the temperature is between -20F and 0F.  It is best if this is said with a British accent.  When it is frigorific, kids start to think that they will be getting off school due to extreme briskness.  This is a magical time a year.

4. Snappy: Time to retire the winter coats!!  We are now in the positives.  Snappy is a seldom-used term for temperatures between 0F and 5F.  Since people like to say frigorific, it is a common tendency to overlook snappy and just say frigorific here.  If you do this, shame on you.  Snappy is a very important part of the weather vortex and you should use it as such.

5. Nippy: Temperatures between 5F and 20F.  This is on the warmer side of Brisk.  When it becomes nippy, the sad realization that it is going to be really *#&$*#& brisk the next five months starts to set in.  This is not a good time to be around people not native to the north.

Congratulations!  We have made it through Brisk.  That wasn't so bad was it?  Now we move on to Mildly Brisk, where the subcategories become even more important.

6. Frigid: Between 20F and 32F.  Frigid gets us up to freezing point.  Remember, that while it may be frigid outside, it is still mildly brisk.  Do not, even for a second, say that it is currently brisk outside.

7. Crisp: Between 32F and 45F.  Crisp weather never hurt anyone.  This is the time to get out the fall coats in the north and the thermal winter jackets in the south.  Crisp weather should bring up happy memories of watching football, raking leaves, and cashing checks.

8. Lukewarm: Between 45F and 48F.  Another seldom used subcategory because people like crisp for some reason.  People also have trouble calling something this temperature lukewarm.  Well, compared to arctic, this temperature is definitely lukewarm, and should be treated as such.

9. Around the Bend:  A great weather term used between 49F and 51F.  Generally at around the bend, either winter or summer is around the bend.  This makes this a great term to use or a horrible term to use, depending on which way the temperature is going. 

10. Snug: Between 51F and 55F.  This is the last possible time someone could be outside in shorts and short sleeves unless they are dumb or at an American football game.  This is very snug weather.  

11. Temperate: Between 55F and 58F.  Now the weather is starting to look real nice.  It is said that the United States climate is temperate.  Well, now we know what that means.

12. Refreshing: Like a can of diet Fresca after a long days work, weather between 58F and 65F is very refreshing.  If you ask someone what the weather is and they say mildly brisk and then refreshing, you should be jumping for joy in happiness.

13. Pacific: Between 65F and 70F.  Imagine you are on a beach of the coast of California.  There is a light breeze with the waves beating down on your toes.  If you were also imagining the temperature being between 65F and 70F, then the weather is pacific.

14. Choice: Between 70F and 75F.  Like a choice cut of beef, this is always the best.  No one should ever be complaining about this weather unless they live on the equator or in hell.

15. Thermic:  We are now at the last one inside mildly brisk (so sad!).  This is between 75F and 80F and is nice weather to go for a walk or take in a baseball game.

Now we approach the upper echelons of the temperature range with Balmy and Steamy.  Prepare yourself because if you screw up in these sections, you may drastically confuse the actual weather situation.

16. Invigorating: This is classically nice weather.  Between 80F and 87F, it doesn’t get much better than this. . .unless you’re allergic to the sun or balmy weather.  Invigorating is similar to waking up in the morning and drinking your morning coffee, this is how this weather feels like.

17. Tropical: Between 87F and 90F.  This is when we really start testing the upper echelon of the system.  When tropical is the weather, it brings up images of the beach in Hawaii.  Make no mistake that tropical can occur in any part of the country.  This is when humans may start to break a sweat outdoors.

18. Scorching:  We are now in the steamy realm.  Image you are a construction worker with the sun beating down on you being absorbed into the black pavement, making the temperature feel much hotter than it actually is.  This is scorching.  Scorching is between 90F and 98.6F.  The fact that this is broken down into decimal points really shows how much thought went into these very scientific categories.

19. Sizzling: Between 98.6F and 101F.  This is like a nice T-bone on the grill.  It has to be sizzling before it is time to eat it.

20. Igneous: All temperatures above 101F.  It does not get any more steamy than this.  This is when old people are told to stay indoors and sane people stay indoors because it is really frickin steamy outside.

I know you may be feeling a bit overwhelmed right now.  Don’t worry, these changes won’t become official until 2013.  This should give you ample time to learn the new weather terms.  I am going to give an example of how you should treat this in the transitional period.  You should be Person 2.

Person 2: What is the weather today bro?

Person 1: Party cloudy, with a chance of showers.  In the evening it should clear out and be in the 70’s.

Person 2:  Dude, that makes no sense.  Don’t you realize we are switching to a new weather system soon.  Get with the program.

Person 1: I am so sorry, what should I have said, sir.

Person 2: Mildly Brisk.

Person 1: That doesn’t help me.

Person 2: Well, then pacific.

Person 1: Thank you, that was more helpful then what I said. I would be so lost without this new weather system!

I will keep you updated on how the implementation process is going for this in the United States and across the world.