Short Oil, Buy A Gun
Research for Online Investors

by John Dalt

9/23/09

The Energy Information Administration (EIA) released their weekly inventory reports.  Crude oil stocks built 2.8 million barrels over last week.  Gasoline inventories grew 5.4 million barrels, and distillates (diesel) increased 3 million barrels.  These numbers are bearish for oil prices.  Distillate stocks are now 36% higher year over year.  U.S. Oil Fund (USO) closed down 5% on the day.  This is probably a pretty safe short.  I have called oil “the trade of the year.”

In July, we looked at the decline in inventory and projected imports and production vs. use. October looked to be the month when equilibrium would occur in supply/demand. That condition is now as elusive as it was in May. We played USO for profits on the upside in the last week. Look to short USO with a price target of $32 The danger of this play is pricing a terror premium into oil, one terrorist act or Israel air strike could cause losses of biblical proportions. To protect your position buy the Oct. $40 call for $0.20 per share. If the aforementioned “black swan” event occurs, your wallet will survive.

An encouraging sign for the future is a report from Baker Hughes Inc.  BHI reports a 64% increase in oil drilling rigs working.  The shortage of oil is just around the corner.  We found out today the corner is a little farther away than we thought.  Nevertheless, we will get to the corner and have to turn to a future no one wants to admit is waiting on us.  The graph below shows active drilling rigs plotted with the price of crude oil.

As you can see rig counts lag the price of oil;
cheaper oil results in less rigs drilling and vice versa.

The administration is studying how to extend a bailout to newspapers.  This should scare the heck out of everyone, except the newspapers that are going broke.  Do you want the government to loan money (control) to news outlets?  This is not socialism, this is fascism.  You don’t have to own a business if you control it through political regulations.  If done like the auto bailouts, the government will replace the board of directors and install their own executive team.

Rosa Brooks was a L.A. Times columnist until being appointed as an advisor to the Pentagon.  I bet the generals love dealing with her.  She advocated “direct government support for public media” in her last column at the Times.  She wanted to grant licenses for approved outlets.  Pravda is planning an in depth look at this story.  To be published in 2012

The Hill reports that “Obama open to newspaper bailout bill.”  The idea is to convert them to non-profits, like churches, providing for our “education.”

Honduras removed President Manuel Zelaya in the middle of the night and deported him out of the country on June 28.  This action was taken ON ORDERS from the Honduras Supreme Court.  President Zelaya had pursued a national referendum to allow him to stay in office past a single term.  This was illegal under the Honduran constitution, according to the Supreme Court.

Interim President, Roberto Micheletti, has called for presidential elections for November 29.  He is not running for the office, he is barred from seeking the office of President, as is the exiled president, since they have both held the office prior.

Zelaya had allied himself with Chavez of Venezuela and sought to take Honduras down the socialist road, with himself as the “fearless leader.”  He thought he could run over the constitution with a popular uprising.  What he got was a trip in his pajamas.

Monday he snuck back into Honduras, hiding in the Brazilian Embassy.  Followers are crowding around the embassy chanting, “Yes we could!  Yes we could!”  Does this sound familiar?

The disappointing part of this whole story is the response of the U.S. government.  Our State department refers to the removal of the President as a “coup de’ tat”, and has called for reinstatement of Zelaya.  A few points to Oh! Bama

1. It is not a coup if done under orders of the Supreme Court.
2. It is not illegal, the government and military were following the law.
3. He is a socialist; he wants to trash his country’s constitution.
4. Chavez and Castro support him.

Our country may have made mistakes interfering in other countries in the past.  Now we are interfering with a country that is following THEIR law, we just don’t like it.  Amazing.

I have found this video of interim President Micheletti addressing the Honduran people on July 8, 2009  You may want to watch the interview he did with Fox News last week.

This guy is not a nut, and appears to be a true patriot for his country.  It is nuts that our present administration aligns itself with Venezuela and Cuba.  Alas, this is the present state of affairs.

Oh! Bama spoke at the U.N. today.  The longer he spoke the lower the market went.  It was interesting to watch the market tank as he apologized and criticized the U.S. in front of the world’s potentates.  It took an hour to recover the lost ground after he quit speaking.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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