On Pollution, Dollar Devaluation... and A Reassurance

On Pollution, Dollar Devaluation… and A Reassurance

by | published May 2nd, 2011

Thought I would start the week answering a few more questions and comments from your fellow Oil & Energy subscribers.

As always, I encourage you to write to me at customerservice@oilandenergyinvestor.com. I can’t offer any personalized investment advice, but I can address your questions and comments in future broadcasts.

Let’s get started…

Q: With the U.S. dollar breaking through a 30-year support level, how would an outright collapse of our currency impact the energy markets? With the potential of severe dollar devaluation in the near future, how can a U.S. investor hedge against this risk? In particular, how would a currency devaluation of the dollar affect energy prices and stock prices of U.S.-based companies? ~ Carol F.

A: First off, Carol, aside from Hollywood script writers, there is no chance of a collapse in the dollar.

Remember, the use of dollar-denominated assets is a matter of global concern. A collapse in the dollar’s value or a severe dollar devaluation (which, depending on the range, may be the same thing) would prompt a contraction worldwide.

Central banks would not allow it – especially the Chinese, who would lose considerable value from their surplus holdings.

In short, if the dollar demonstrated significantly accelerating weakness, it is in the interest of the rest of the world to support it. The weakness will come from domestic policy decisions in Washington, not from any concerted currency attack from abroad.

Currency baskets used to determine exchange rates in many countries are being revised to lessen the dollar percentage. However – and this is the important point – the dollar remains the dominant single currency in the mix.

The dollar may, some day, cease to be the primary international trading currency, but that will not happen anytime in the next several decades.

When it comes to the relationship between the dollar’s effective value and energy investments, the discussion begins and ends with oil and gas.

Throughout the world, trades in both commodities remain overwhelmingly denominated in dollars. As the dollar weakens, it takes more of them to buy the same barrel of oil.

That means a U.S. company producing oil obtains its valuation not from where it is located… but from what it does.

Now, a continued decline in the value of the dollar moves trading interest into commodities, such as oil, that have their own positions as financial assets (as well as raw materials).

Bottom line for the individual investor is this: U.S. domestically produced energy, especially natural gas and alternatives, will offset the pressures to raise prices for electricity and (in the case of gas) for petrochemical feeder stock. For the remainder of the market, as long as oil prices increase, so will the valuation of U.S. companies producing it.

The primary hedge here is to use exchange-traded funds (ETFs) reflecting companies in specific market sectors (medium-sized U.S. oil producers, for example, or Canadian oil sands, or alternative energies) and allowing a play of that sector without a complicated portfolio.

For the commodity itself, there are several ETFs reflecting the futures trading markets in New York, London and the relationship between them.

[Editor’s Note: Kent’s successful Energy Advantage portfolio does exactly this, and his subscribers are already profiting. To find out more, just click here.]

Q: Everything I have been reading about the new techniques for recovery of oil and natural gas claims that they could result in bigger “pollution” problems than the current problem of auto pollution. ~ B.J.

A: All drilling is invasive. And when applied to unconventional production – such as shale oil and gas, tight gas, coal bed methane, heavy oil, bitumen, and oil sands – the traditional techniques of drilling and processing do have a greater adverse impact on the environment.

The further steps required to upgrade that synthetic oil to allow refining is also a concern.

However, the environmental protection equipment and procedures are now improving. Negative impacts have been significantly declining for in situ production, horizontal drilling, hydrofracking, steam-assisted gravity drainage (SAGD), and mining techniques for oil sand deposits.

Still, problems remain, especially in concerns over the longer-term effects of fracking and our ability to protect water sources.

In addition, the deeper and longer the horizontal drilling stages, the greater horsepower requirements are in the machinery running the operation from up top. That machinery primarily runs on diesel. So the greater the horsepower, the more likely there will be diesel spills on the surface.

Yet for all of this, regulations currently exist, and technical advances are coming into the market to meet new emerging problems on a regular basis.

And as for the auto pollution comparison – if the energy is natural gas, the auto emissions would actually be less than current levels when the fuel reaches consumer use.

Q: We need reassurance again that when the stock market tanks (as it surely will), the recommendations you have given us will not participate. We are on the edge of something most people will not like. Please tell us one more time why our investments are headed on the upper path. ~W.P.

A: Sounds like somebody needs a hug!

There are no certainties in investing. But as the track records of both Energy Advantage and The Energy Inside Circle portfolios indicate, we are doing just fine.

Both portfolios are performing considerably above market. And it’s due to the rationale I provided when they were introduced.

Remember, we are moving into a period of high volatility in energy pricing, where the instability will make traditional analysis very difficult. Both portfolios are structured to take advantage of the volatility and to provide early indications of changes impacting on our holdings.

In the final analysis, the only measurement is performance. And on that score, we are doing extremely well.



Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at customerservice@oilandenergyinvestor.com

  1. Carol Ferguson
    May 2nd, 2011 at 11:33 | #1

    Thanks Kent!

  2. georgeoram
    May 2nd, 2011 at 11:45 | #2

    please send me current porfolio recos. i lose track of how to find these things as i am a bit old and a lot vague, george

  3. Ventureshadow
    May 2nd, 2011 at 11:46 | #3

    The stock market is a tide that elevates or depresses all boats. You can get a hug but if you want insurance that you will not lose money with your investments you need to pay for it. It is not reasonable to expect Kent to guarantee your investments. Even hedge fund managers who take 2% of principal + 2% of profits do not give guarantees.

    For the insurance you crave you can buy far out-of-the-money puts on an S&P index such as SPY. Do not buy an inverse ETF, they are cheats.

  4. Richard DeBuck
    May 2nd, 2011 at 11:53 | #4

    Thanks for your great publications. I recently joined the MoneyMapPress Passport Club so I can receive all your publications for life. Your 2 investment publications had a lot to do with my decision to join.

    May 2nd, 2011 at 11:59 | #5

    DEAR KEN THANKS FOR YOUR ADVICES .i am sure we can trust them always .
    best regards.

  6. Loxomo
    May 2nd, 2011 at 12:01 | #6

    The patented technology of ECOSPHERE TECHNOLOGIES (ESPH)(www.ecospheretech.com) seems to be the perfect answer to the “hydrofracking” controversy w/o leaving any carbon footprint whatsoever and treating water on site-the only company able to do this in America. Why don’t you ever expound on this great company for your followers? loxomo

  7. BJ Smith
    May 2nd, 2011 at 12:47 | #7

    Dr. Kent,

    Since I joined your investment group I have been following every one of your recommendations on a trial basis because I am new to this kind of action in oil & gas. Thank you so much for your input and suggestions!

  8. HoneyB
    May 2nd, 2011 at 12:58 | #8

    Dear Kent,

    In past letters you have stated that there is much water in the extraction of shale oil. What do you think about Heckmann Corp, HEK? They recently formed a joint venture with Energy Transfer Partners, LP. The higher the price of a barrel of oil, the better for the the industry to use this company’s water extraction services. Any better alternatives?

  9. HoneyB
    May 2nd, 2011 at 13:05 | #9


    My apologies. Didn’t you already suggest BAS? I took that suggestion already. Besides a hug I need to caalllm down.

  10. Hans Harvig
    May 2nd, 2011 at 14:18 | #10

    HEj! What about Satcon? Are the shortsellers still dominate this stock? / Hans

  11. Martha Perkins
    May 2nd, 2011 at 15:12 | #11

    Where does the line form for the hugs. . .?

  12. May 2nd, 2011 at 18:42 | #12

    Dear Dr. Moors,

    Given that the US debt/GDP has reached nearly 100%, and that, with gold price at $1,565/oz, USD has lost 98.5% of its intrinsic value (substance for lawful money, as opposed to “legal tender”; fiat paper money)since the default in 1973, when gold was fixed at $35/oz, when will we see a major devaluation in the USD? In other words, is the residual intrinsic value of the USD sufficient to prevent its devaluation?

    Thank you for addressing my question, Sir.

    Kind regards,
    ben Zadegan, MBA, PhD
    +44 77 99 074 077

  13. David
    May 2nd, 2011 at 22:10 | #13

    Could not disagree more with you regarding the dollar.Inflation steals every day and will only intensify,Housing down and more to go,un and underemployed,one out of 5 american families on food stamps,rising gas and food.Its already happening.We dont need an international disdain for the dollar we have a domestic one and it will get worse.Most americans do not travel in your circles and rising gas ,oilaand food eat up their wages which are not inflating.Your response was cavalier and insensitive to the typical american.You may know oil but your macroview of this sovereign debt crisis is woefully misguided and flip.

  14. Allen N.
    May 2nd, 2011 at 22:14 | #14

    I can’t help but think that when interest rates rise all commodity related stocks will go down with the rest ofthe market and it seem inevitable. Since I’m heavily invested in your recommendations, I’m more than a little concerned.

  15. Jonathan Macfarland
    May 2nd, 2011 at 22:54 | #15

    I guess it depends as to when someone came aboard the Energy Inner Circle Bandwagon as to how profitable one is. I came aboard about two months ago and am now down on all my investments recommended by Dr Kent Moors. ie Chesapeake,($35.59 and then $34) Schlumberger, ($92.27) Prudhoe Bay, ($116.44)Satcon, ($4.23 and then $3.19. Coupled to this I am a Canadian invester and my values in Canadian dollars have fallen even further. Is your guarantee to refund your subscription still availaable? I believe you said 8 months.

    Jonathan Macfarland

  16. Davis
    May 2nd, 2011 at 23:12 | #16

    >>A: First off, Carol, aside from Hollywood script writers, there is no
    >>chance of a collapse in the dollar.

    Really? The dollar is down 40% since Jan ’02. If you’re planning on retiring, your nest egg has almost shrunk in half.

    >>Central banks would not allow it – especially the Chinese, who would
    >>lose considerable value from their surplus holdings.
    A few years ago the Chinese have stopped buying large amounts of long term U.S. bonds and have switched instead to short term T-Bills so they can get out of U.S. currency quickly. They need to dispose of their U.S. $ and the only way to do it is to buy resource companies. They need to get rid of $1 trillion before the dollar depreciates any more.

    >>The dollar may, some day, cease to be the primary international
    >>trading currency, but that will not happen anytime in the next
    >>several decades.
    It is already happening today. Russia and China have stopped using the U.S. dollar for many of their international transactions. So have a few middle east countries.

    >>In short, if the dollar demonstrated significantly accelerating
    >>weakness, it is in the interest of the rest of the world to support
    >>it. The weakness will come from domestic policy decisions in
    >>Washington, not from any concerted currency attack from abroad.
    The U.S. is the world’s largest debtor nation. It will NEVER pay back its debt to the foreign governments. In order to pay off its debt every year, the U.S. must print more money. The interest on the debt is currently 17% of the GDP. This may not seem like much, but when interest rates rise, the interest will balloon to over 70% of GDP. And how will the U.S. pay for it? Print more money. That is their solution to everything.

    The Republicans took 4 months to cut $30 billion from the deficit, which amounts to 0.2%. This is a joke. No one is serious about reducing the size of the deficit. If everyone was taxed 100% of their wages, they still couldn’t balance the budget. Where is this money going to come from? They are going to print more money.

    For the past 30 years, ever since Reagan said deficits are not such a bad thing, everyone has been on a spending spree. Countries will no longer buy U.S. long term bonds. The short term T-Bills are now being bought by the Fed because no one else wants them. The Fed now owns almost $1 trillion in U.S. debt.

    Bernanke will never raise interest rates to fight inflation. If he did, it will blow up the housing bubble (which he is trying to keep inflated) and it will also blow up the bond bubble.

    The U.S. dollar is doomed. There is no way out of this mess unless the size of gov’t is greatly reduced, spending is dramatically slashed, and there are higher taxes. No politician has the gonads to attempt this if he wants to get re-elected. So it is spend, spend, spend.

    Inflation will soar. The dollar has to devalue. The U.S. will lose its reserve currency status by 2016. Countries will no longer hold U.S.$ because it is headed to become the next Zimbabwe currency.

    Get out of the U.S. $ and go into commodities in countries like Canada and Australia. Buy precious metals on dips and store them outside of the U.S..

    There is only one inevitable outcome. The gov’t has to run the printing presses night and day. Inflation is already at 8%-10% and unless the gov’t puts the brakes on spending, inflation will spiral out of control.


  17. Dusty
    May 2nd, 2011 at 23:59 | #17

    If you need a hug. . . or some reassurance. . . or some philosophy.

    Find “Seeking Alpha.” Read some of the articles by David Fish, David Van Knapp. There are others, many within the ‘comments.’

    This is about dividend investing. Dividend investing is long term. In the long term the volativity of the markets evens out. The primary factor is the continuity and stability of the dividends.

    The markets follow a pattern like a small boat over the waves of the ocean. There are storms, too. Presently the world and the markets are in a storm. Different curriencies also move relative to each other. For investments based in another currency, watch the exchange rates.

    The dividends are usually more even and maybe increase over long periods of time. So long as the dividend payments continue at the same cash level and eventually increase as the stock value increases, the dividend investor is doing fine.

    I, and presumably you, are paying Dr. Moors to find and watch the securities suggested for this portfolio to generate the best possible return on the total money we invest in this portfolio. For each of us it is important to keep track and keep perspective.


  18. Jim
    May 3rd, 2011 at 09:10 | #18

    Any time someone talks about never losing money in an investment, run, don’t walk away. That is what Bernard Madoff told his customers.

  19. George Laskaris
    May 3rd, 2011 at 09:46 | #19

    Hey Kent,
    Thanks for the interesting energy ride. without you i’d have stayed away.
    I have read a few articles on an oil deposit under the Rockies that is a real monster. Is it true and if so, how do we get a slither of the pie?

  20. peter
    May 3rd, 2011 at 10:26 | #20

    Any current buy reccomendations?

  21. Sumflow
    May 13th, 2011 at 19:09 | #21

    Dusty: > And eventually increase as the stock value increases.

    It can happen that way, but with many securities, the stock rises as the dividend level increases. It is the market keeping yields in line that buoys’ the stocks price.

  22. werner retired
    June 20th, 2011 at 18:11 | #22

    The Us has only two choices . increase import dutiees by 20% or devaluate the dollar ! Its this, or doomsday!

  23. Tim Queen
    August 2nd, 2011 at 06:03 | #23

    Here is hoping Dr. Moors can cover water transportation stocks, and how they will work with the new energies.

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