Why Oil Shares ARE NOT Following
Record Highs in Crude Oil…

Today's comment is by Eric Roseman, Investment Director and editor of Commodity Trend Alert.

Dear A-Letter Reader,

There’s yet another market anomaly happening this year. This one is hurting many commodity bulls who called the market right, but chose the wrong way to play the trend.

Despite another great year for crude oil, (recently trading north of US$109 per barrel), oil stocks are still in negative territory. This proves that under severe market circumstances like these, you can find disconnects between commodities and their corresponding stock plays. In other words, to capitalize on US$100 oil, you have to do more than just buy Exxon.

Rising Oil, Falling Energy Stocks?

It’s not the first time commodities have broken away from their respective natural resource stocks.

Back in 2002, crude oil went through the roof after forming a bottom in late 2001. But investors lost big money betting on energy stocks that same year.

In 2002, crude oil prices gained a whopping 52% while global stock markets suffered their third year of a grueling bear market. However, the largest oil stocks in the United States, as measured by the Energy Select Spiders ETF, plunged 15% in 2002.

Exxon Has Been a Dog This Year,
While Crude Oil is Dandy

Exxon-Mobil, the world’s largest energy company based on market-capitalization fell 5.6% in 2002, including dividends. Chevron, declined 13.6% and Conoco-Phillips lost 12%. None of these companies posted a gain in a year when oil prices enjoyed their strongest advance in years.

In 2008, crude oil has once again deviated from the performance generated by oil stocks in the United States and abroad.

As of earlier this week, West Texas intermediate crude oil had gained nearly 13% in 2008. (Crude oil leapt to US$111/barrel as of yesterday.) Yet once again, a basket of the world’s largest oil companies has posted double-digit losses this year. Exxon-Mobil has shed 12%, Chevron has declined 9% and the Energy Spiders ETF is down 6% in 2008. They’re all failing to provide absolute returns in another bull market year for oil.

It’s not just U.S. oil companies. Foreign oil majors like Royal Dutch Shell has tanked 14% and Italy’s ENI is off 3%. Both stocks are denominated in stronger foreign currencies and have still logged declines in dollar terms.

Bear Markets Pull Most Stocks Lower

So what’s causing this strange anomaly between oil prices and oil stocks? For starters, it has more to do with the broader market’s performance than earnings or company specific events.

The velocity and severity of a bear market takes the majority of stocks and sectors to the basement. That’s what happened in 2002 and it’s happening again this year. The disconnect has arrived once more as surging oil prices has not helped stocks like Exxon-Mobil and Chevron.

In a bear market, and we’re in one right now, stock selling becomes so widespread that institutions and investors alike dump the good, the bad and the ugly. It’s extremely rare for a stock to rally during a bear market, despite harboring positive fundamentals or record earnings. That’s because the selling pressure is simply too enormous.

Turn to Commodity ETFs in a Bear Market for Stocks

If current trends continue, 2008 might look a lot like 2002 for oil investors. That year, crude oil soared 52% while the S&P 500 Index tanked 22%. That was its worst calendar year return since 1974. Oil stocks on both sides of the Atlantic posted losses.

In a bear market for common stocks, I would advise you to shift some of your commodity capital away from natural resource stocks and into commodity-backed exchange traded funds (ETFs) instead. Specifically, look for ETFs that invest directly in things like oil, natural gas, coffee, and wheat.

That’s where the big money will be made this year as most commodities futures continue to rally and stocks decline – even in the natural resource sector.

Oil prices might not rally far beyond this week’s highs in the midst of a slowdown in overseas economic growth and a U.S. recession. But if prices do continue to surge, the best way to play crude oil at this stage is to purchase an oil ETF, and not an oil stock.

A great investment idea is a terrible thing to waste. Look to commodity ETFs as a safer and ultimately, a more profitable way to invest in this historical bull market for raw materials.

ERIC ROSEMAN, Investment Director

P.S. My colleague, Mike Burnick has an entire service that tracks global ETFs all around the world in his service, Global Market Investor. Mike is playing this commodity rally, with three different bear-market-savvy ETFs that are capitalizing on the recent spikes in crude oil. Click Here to try out his service, for some safe alternatives to this year’s bear market for stocks.

Last time stocks from Wal-Mart to Ford got slaughtered...
a few savvy investors became 10 to 20 times richer!

These same tricks can work for you as we sink deeper into this recession.

Fasten Your Seat-Belts as the Dollar Plummets While Foreign Currencies Soar

Gold just hit US$1,000 an ounce...oil is at US$111/ barrel now. Gasoline futures just rose to an all-time high (even though the "summer driving season" hasn't hit yet). I don’t even want to think about how much we’ll be paying for gas this summer.

And it wasn’t just oil and gas…

• The euro hit an all-time high (once again) against the buck at 1.5624.
• The yen is at parity with the dollar (USD/JPY = 100). It may not be long before the Swiss franc reaches parity with the dollar. Meanwhile, the Canadian dollar is still "better than parity" with the greenback.
• The U.S. dollar index hit fresh lows at 71.80.
• The Singapore dollar just hit fresh highs against the buck.

Not to mention that food costs are still soaring...foreclosures on homes are still rising...in fact, bank repossessions just doubled last month over the previous month.

So what am I trying to say...it's ugly out there. It's going to get even uglier in the near term. Unemployment will rise, more firings will happen.

Economies can't turn around on a dime no matter what "rabbit" the Fed pulls out of its hat. So you'd better tighten your seat belt and get ready for the ride. If you live in the U.S., plan to save back some cash and trim the fat financially. You'll be glad you did.

As the U.S. dollar continues to sink in the near term, most anything priced in dollars will become much more expensive: gas, oil, electricity, gold, silver, food, etc.

So watch your spending...because you're going to see many around you in tough times.

The good news: Many currency trades out there are soaring, particularly the “anti-carry trades,” I’ve been talking about for quite some time. In fact, betting against the traditional carry trades (EUR/JPY, GBP/JPY, EUR/CHF, etc.) has been a really good strategy these past few weeks.

Also, my favorite high-yielders like the Australian and New Zealand dollars have soared. So you're a part of a knowledgeable crowd that’s positioned in these currencies, you’ve been able to counteract the falling buck and higher energy costs.

SEAN HYMAN, Currency Director

P.S. Want to know more about how to protect yourself from the plummeting buck? Sign up for our FREE currency E-Letter, My Two Cents, and we’ll bring you our best currency insights five days a week.

Uncle Sam Doesn't Want Anyone to Visit Cuba

One of the best-kept secrets in America's arsenal of financial sanctions is the U.S. Treasury Department's Terrorist Watch List. It's maintained by the Treasury's Office of Foreign Assets Control (OFAC), and it enforces economic and trade sanctions against more than a dozen countries.

One of those countries is Cuba. Under a series of executive orders and laws, it's illegal for a U.S. citizen to travel to Cuba, without a "license" issued by OFAC. It's also illegal for a U.S. company to do business with Cuba without a license, except in narrowly defined circumstances.

However, these laws and regulations have no legal effect in other countries. If someone, say, in Spain, wants to travel to Cuba, there's no violation of U.S. law because the United States has no jurisdiction over Spain.

Only, it does, according to OFAC. In October, OFAC shut down 80 websites owned by a British travel agent named Steve Marshall who sells vacations to Europeans. Why? Because Cuba is one of the travel destinations Marshall offers his clients.

This was justified, according to OFAC, because Marshall's company "helped Americans evade restrictions on travel to Cuba" and was "a generator of resources that the Cuban regime uses to oppress its people."

Marshall says he didn't market Cuban vacations to Americans, "because they can't travel there, anyway." But his real mistake was using a U.S.-based domain name registrar for his websites. This gave OFAC the ability to contact the registrar, eNom, and order the company to pull the plug on Marshall's websites.

Given the fact that failure to comply with OFAC regulations can be punished with a 30-year prison sentence, a US$5 million criminal fine, or a civil penalty of up to US$1 million, eNom quickly complied.

Fortunately, Marshall was able to re-register his websites with a European registrar, although he had to rename most of his websites. He added the suffix ".net" rather than ".com."

But there's a larger issue at stake. OFAC shut down Marshall's business without warning, without a hearing. And it resulted in hundreds of thousands of dollars in lost revenues. Not exactly the "American way" we read about in civics textbooks.

However, it could have been worse. If Marshall had established a U.S. bank account, or maintained any other asset in the United States, the U.S. bank or custodian would have been obliged to freeze it, and turn the proceeds over to OFAC.

Are you on the OFAC terrorist watch list? You can find out for yourself by visiting OFAC's list of "specially designated nationals" here.

If you're on the list, though, don't count on getting off anytime soon. That's because the only way to get off is to ask OFAC to remove you from the list. This is an administrative determination – you have no right to a court hearing to determine if you should have been put there in the first place.

In other words, the same bureaucrat who put you on the watch list in the first place may be the one who you ask to take you off of it. Good luck…

MARK NESTMANN, Privacy Expert, &
President of The Nestmann Group
www.nestmann.com

P.S. This is just one way the U.S. government tries to interfere in your life. Click here for ways to protect yourself from countless other unnecessary intrusions.

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