Ka-BOOM!!

The U.S. equity market had a rough day today, to say the least. Just when we thought it was safe to go back in the water…

It is starting to dawn on the market that the housing bubble’s bursting is going to get a lot of us wet. But some we will be drier than others.

Oil & Natural Gas (“NG”) producers, and especially energy service companies, have been beaten down with the rest of the crowd. The fear is that oil demand will decline with an economic contraction. Egh! Wrong! Thanks for playing. For better or worse, energy demand is going to be limited by supply, not world economic growth.

As the holder of a securities license, and as head of a NASD member firm, I am prohibited from making specific recommendations in this forum. I CAN say that it is my opinion that energy companies are being priced as if oil was already $40 - $45 per barrel, when in fact oil is $75 per barrel. Some of this is because NG is, in fact, trading at little more than $40 a barrel of oil equivalent (“BEO”) and uranium is priced even worse – at $3 BOE, but even though we will heading into year end with NG reservoirs full, I will tell you one absolute, unequivocal truth: Winter is coming. And, in fact, oil prices in the spot market may have gotten ahead of themselves; but take a look out several months in the oil futures market and see if the commodity market thinks the sell off in energy equities is warranted.

Energy consumption is higher in the 3rd quarter than the 2nd, and higher in the 4th quarter than the 3rd. It is my opinion that 2007 will be no different, housing bubble or no housing bubble, and that OPEC will not be able to meet the EIA and IEA calls in the 4th quarter. Energy, precious metals, and agricultural assets are attractive (and they are more so today), and everything even remotely related to housing is doomed for the next generation or so, and I mean that very literally.

Keep your eye on the barrel, er, ball.

Mentatt (at) yahoo.com