Riske Business April 2007

Call me a Greaser, but I still like oil and gas at these prices. The Canadian oil trusts continue to pay out humongous dividends even if the price of oil falls to $54.00 per barrel. While it is dangerous to say “it’s different this time”, there is one factoid we must all be aware of: In 1992 China satisfied its oil needs with its own production. This year, China will import 40% of its total oil needs.

The price of oil has come down by 25% since its peak. Hold on to your oil investments, especially the oil trusts. At today’s prices PGH is paying about a 14% dividend; PWE about 10%; PWI about 13%, so you see that even if oil and gas fall further from here, dividends will still be relatively high. Upon the next new gains in oil & gas prices, you may want to sell back to 20% of your holdings if gains bring you higher than 20% of your portfolio. The commodities bull market will resume once this correction is over. Talented stock chart technicians are already predicting the bottom is in for gold and gold mining stocks along with oil and oil company stocks.

With each steep correction within a secular bull market, there arises a new power within the segment. With the advent of the boom market in oil & gas prices, we are seeing the power of capitalism come to bring more energy on stream. This will heighten the competition for energy as an investment. Whether it’s natural gas pipelines, sands oil development, coal fueled power plants, wind turbines or 
ethanol plants, untold billions of new investment is pouring into every 
aspect of energy production and delivery. New plant production costs are not 
cheap and engineering construction companies are being taxed to build them. It is the price at the pump that brings money, energy and politics to the energy spectrum.

Base metals, on the other hand, are not sexy. How many times a day do you think about zinc? How about tin or nickel? I know, me neither. Another reason I like the metals area is that a new vein of metal is very difficult to find, and when one is found, then miners have to deal with all the regulations necessary to bring a mine to production which can take up to 10 years. During the recent plunge in commodities prices, base metals moved the least and they’ve been recovering relatively more rapidly than the rest of the commodity family.

There is another, more ominous reason to like base metal mining shares here: the prospects for expanded war throughout the Middle East. Bomb casings, bullets, armored vehicles, etc. all take a monstrous amount of metals. Add to that the millions of cars that will be produced for the newly middle class of India and China and you have growing demand for the metals.

My own favorite metal miners are digging for nickel. Nickel is added to iron to make steel. There are very few pure plays in the metals arena. I’ve purchased some Jubilee Mines (JBMNF.PK) from Australia and Ivernia Mines (IVW.TO) from Canada. Jubilee mines nickel, while Ivernia mines lead. The big favorites in the mining business are BHP Billiton (BHP), and Rio Tinto (RTP); both pay generous dividends. If you’d prefer an Exchange Traded Fund (ETF) to spread your risk, try XME. Just for fun, go to Bigcharts.com, choose interactive charts then type in TIE and CCJ for a two year duration; this is how wild things can get.

Another big change coming our way is the flood of new ETFs coming to form new ways to hold actual commodities. For example, hold physical gold with GLD or physical silver with SLV. You can spread your risk in gold miners too with GDX. There’s many more. You can do some digging yourself by going to ETF Connect.

If you like stocks, silver is looking strong through this connection and the favorites there are SSRI, SLW and PAAS. AEM is a gold miner with silver production and FCX is a copper miner with gold production. FCX pays a very nice dividend and Freeport McMoRan (FCX) just declared a giant gain in earnings for the most recent quarter.

Riske began his entrepreneurial career with a waterbed store in Grand Forks in 1971 called The Walrus. Walrus Waterbeds was sold to HOM Furnature in 1984. Currently Riske is owner of Take Two Video, Take 2 Express, MJ Capelli Family Hair Salons, VidCycle and Sunseekers Tanning Salon. Riske is not a licensed financial advisor and those seeking investment advice should consult with a licensed financial advisor. To contact Riske, email marty@fmbizjournal.com

To read other financial and business news, visit http://www.fmbizjournal.com. The Business Journal is a locally-owned newspaper serving the greater Fargo Moorhead area and the Red River Valley.