How to Exact Revenge on a 1979 Gas Line & Pump Your Portfolio

Several recessions and crises later, I have learned to exact a little revenge as a professional who researches and successfully invests in North American energy, infrastructure and engineering stocks and bonds.

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Gas LineShould you avoid stocks? Are interest rates about to skyrocket?  Is the economy about to go into recession? The answer is…”it’s possible!” Regardless, my wish for you is to be informed and focused on the right reward-to-risk opportunities.

It was a blistering hot day in 1979, sweat stinging my eyes as we sat in line among the many seeking to fill their gas tanks. The Country’s second energy crisis of the decade was triggered by widespread panic surrounding geopolitical events. A recession came in 1980, and I remember the burdens my single-mother had to endure in order to keep us clothed, fed, and sheltered. Several recessions and crises later, I have learned to exact a little revenge as a professional who researches and successfully invests in North American energy, infrastructure and engineering stocks and bonds.

People often get emotionally charged about “Big Oil” and “Rich Fat Cats,” and you have most likely seen many magazine covers, newspaper articles, and television interviews on the global fortunes won and lost in the energy sector. Still, thirty-five years after my miserable experience in line at the local Texaco filling station, the United States, Canada, and Mexico are only at the cusp of an exponential energy renaissance. It is not too late for you and your portfolio to benefit and to take a little something back in capital gains and income.

Tip: Never make investment decisions
when feeling euphoric or despondent.

U.S. oil production peaked in the 1970s, and U.S. dependency on foreign oil grew with the ensuing 30 years of production declines. To be sure, this subject is not without its controversies; however, the North American energy landscape is quickly evolving into a revolution:

  • technological advances worker
    (safer hydraulic fracturing and horizontal drilling)
  • massive and economical shale discoveries (fossil fuels, i.e. dead dinosaurs)
  • tenacious oil and gas workforces (Pride, Hard Work, and Skills)
  • gradual political and regulatory shifts (drilling, exporting, transporting)
  • efficiencies in use, transport and renewal (highway & light bulbs, ships, garbage)

According to the Energy INet Importsnformation Administration (EIA), total U.S. energy reliance on non-domestic sources could be as low as 4% in 2040, compared with 16% in 2013 and about 30% in 2005. Said another way, it is estimated that domestic production satisfied 84% of total U.S. energy needs in 2013 versus only 70% in 2005! The EIA estimates that at current consumption rates there is enough natural gas in the U.S. to last about 100 years. The combined potential of the U.S., Canada, and Mexico are ranked top in the world and may surpass the natural resources discovered in the Middle East, South America, and Russia. The United States is the clear leader in technical expertise and energy innovation. Shaded areas of natural resources are shown on the U.S. map further down in this post. You may have heard of abundant areas like Marcellus, Barnett, and Permian.

The Energy Value Chain

810_Oil_Gas_Value_Chain_Diagram

Tremendous momentum in oil and natural gas production continues to drive opportunities across a wide spectrum of sectors and regions. Thank you to Boston Strategies International for the above illustration that encapsulates much of the energy value chain. A series of activities must occur to ultimately deliver valuable resources, products, or services to end users who love to drive, grill, and stay warm or cool. The United States has the potential to massively expand its capabilities as an exporter of energy products. Negative headlines, doubts, and drops in investment values will occur from time to time. View these inevitable market worries as potential opportunities to wisely invest, as the energy independence story is real, growing, and likely to be a solid foundation for North American economies for decades to come.

Below are five categories of the energy value chain for you or your portfolio advisors to research. There are ample investment opportunities that will range in company size, income production, and level of risk.

  • Upstream investments include exploration, drilling, and production
  • Midstream investments include pipelines, storage, and processing facilities
  • Downstream investments include power generation, transmission, and distribution into your home, industrials, and transportation vehicles
  • Supportive investments are available in engineering, field services, materials, supplies, equipment, and environmental protections
  • Natural Gas Liquids (NGLs) and refined crude oil byproducts are inputs into a wide range of products, including fertilizers, plastic containers, tires, carpet, and paint so there are positive implications for manufacturing industries too.

20+ years of investment experience have kept me true to my framework: Be Patient, Possess a Defined Discipline and Process, Customize Selections and Decisions Based on Your Unique Portfolio-Period!

While much of the world was knocked off course by the financial crisis of 2007-2008 and its aftermath, the energy sector has added fuel to the otherwise mediocre economic recovery. States like Texas, Wyoming, Pennsylvania, Louisiana, and West Virginia are known for their respective energy production rankings. North Dakota is the fastest growing state with unemployment below 3% and has an economic growth rate in the double-digits. The Utica Region in eastern Ohio is one of the fastest growing natural gas production areas.

Utica Ohio

The below Bureau of Labor Statistics (BLS) chart illustrates 10 years of
employment growth in Oil & Gas employment.

employment oil and gas

US Shale MapOne of the greatest potential percentage growth opportunities resides in the global demand for liquefied natural gas or LNG. This predominately methane product has been converted to a liquid form through a cooling process to minus 259 degrees Fahrenheit. LNG is a clear, colorless, odorless liquid that occupies only a fraction (1/600) of the volume of natural gas making it easy to store and transport.

Why use LNG?

Natural gas is considered the cleanest burning fossil fuel. It produces less emissions and pollutants than either coal or oil. Historically the United States imported LNG to numerous import facilities along the Gulf Coast and on the East Coast. Many existing and proposed LNG facilities have applied for licenses to export LNG to foreign countries who view the fuel source as an extremely price-competitive means to help meet future economic needs. For instance, Japan is actively seeking strategies to meet shortfalls caused by the Fuksuhima nuclear power disaster.

Panama Canal Expansion

panama-canal3As early as the 16th century, American and British leaders and businessmen wanted to ship goods quickly and cheaply between the Atlantic and Pacific coasts. The Panama Canal opened officially on August 15, 1914 after many lost investments and lives. President Theodore Roosevelt oversaw the realization of this goal as shown in a photo of the President on a steam-powered digging machine during construction of the Panama Canal. (Photo Credits: H.C. White Co., N.Y)

Today’s ongoing expansion of the Panama Canal is the largest project at the Canal since its construction 100 years ago. Objectives call for a third set of locks, a Pacific access channel and dredging of existing navigational channels. The completed expansion should double the Canal’s capacity, having a direct impact on economies of scale and international maritime trade. This will prove hugely beneficial to accommodate LNG carriers who cannot currently pass through the Canal’s walls. For instance, one shipper from a terminal in Louisiana estimates its shipping time to Asia may be reduced from 64 days to 44 days.

How is LNG transported?

shipShipping companies are building 1,200 foot long vessels, and buyers are signing contracts for the double-hulled ships specifically designed to handle the low temperature of LNG. These carriers are insulated to limit the amount of LNG that boils off or evaporates. As of December 2013, the LNG fleet stood at approximately 387 ships with new and larger vessels on the way. (Source: IHS Fairplay)

Please visit the official website of the Canal De Panama Project for great photos, video, and updates of the expansion: http://micanaldepanama.com/expansion/

Is the sweat beading up on your brow as you try to outguess the next crisis or market drop? Are you sitting in line with the crowd, beholden to fill-up on group-think stock, bond, and economic analysis? The clouds may darken overnight; however, I want to throw down a challenge for you to remain calm as a fellow educated investor in a magnificent shift as powerful as demographic trends, tax reform, or any other human constructed crisis.

There is an Energy Revolution in North America–It is just taking hold and you have an opportunity for your family’s portfolio to exact revenge on those gas lines, “fat cats,” and missed investments.

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I welcome your comments and please stay tuned for future articles where I plan to offer a range of insights and solutions — from battle-tested fundamental and quantitative active management approaches to the qualitative side of being a professional investor.

About Michael Hakerem, CFA:

Michael embodies client-stewardship in all his work and happens to be a passionate expert in securities analysis, asset allocation, economic analysis, and wealth management solutions.

Email Michael at mdhakerem@gmail.com
Follow Michael on his LinkedIn and Twitter

9/11: A Journey of Remembrance and Perseverance

The smoke continued to rise above the ruble as Jenn crossed the street to offer her condolensces to an NYC police officer. It was dark and the silhouette of his form in the streetlights laid testament to a man who lost many brothers only months prior and now stood solo as guard to their memory.

I can still feel the tremendous breeze flowing across my body. I stood as high as we could go atop the World Trade Center as my ears rattled. It was the late 70’s, and I was a boy anxious to soak up the view and all the world had to offer. I vividly recall life dreams taking shape on a canvas of blue sky.

I cannot begin to imagine the feeling atop those same buildings surrounded by a tornado vacuum of wind, flames, fuel, tears and screams. At that tragic moment on September 11, 2001, my friends, whom were never found, may have looked into the cool, crisp blue skies, anxious to end their view and never to again experience all the world had to offer. Their vivid dreams literally crushed or burned away…

Born in the Bronx, I grew up walking the streets of NYC as I visited family. Yes, I even ventured into Times Square before I really understood what all those XXXs meant. I often traveled to the Financial District and the magnificence of it all inspired me professionally. My career journey almost brought me back to World Trade Center plaza in 2000. Instead, my wife, Jenn, and I moved to Raleigh to achieve a balance of life and career. September 11, 2001, a seemingly ordinary day, a fall day once filled with hope, found me walking into my office to lead an investment committee meeting and watching, first-hand, as a second plane unleashed its fury on New York City. A City etched deep into my soul.

During the week following 9/11, I retrieved several pieces of paper mail as part of my afternoon routine at the office. Approximately four steps later, I froze and tears welled-up in my brown eyes. My heartbeat accelerated as I discovered the large legal sized envelope in my hands was postmarked WTC-Tower 1, the very building where my office may have resided. My mind journeyed back in time, I recall thinking that young boys and girls will never experience the view which meant so much to me twenty-years ago. Impossible, the buildings are gone! They are just gone!

Without hesitation, I boarded a plane to Boston the following month and experienced the German Shepherds, the heavily weaponed personnel, and the loss of naivety. Travelers and workers alike appeared to be on-edge but also numb in their existence. In December 2001, Jenn and I personally paid our respects at the site. During this visit, recorded only in our minds, I recall looking into the eyes of smiling faces…happy friends, relatives, and co-workers. Only these faces were taped, glued and pinned to a wall of hope–they were the missing loved ones gone too soon. I longingly stared at the pictures of fathers, mothers, and children and was lost in my own imagined sketch of their lives left an unfinished masterpiece. The smoke continued to rise above the ruble as Jenn crossed the street to offer her condolensces to an NYC police officer. It was dark and the silhouette of his form in the streetlights laid testament to a man who lost many brothers only months prior and now stood solo as guard to their memory.

I made a prayer promise to childhood friend, Rick, who at 38, was among the missing. He was an adored husband, father, brother and son. That promise: To always work hard with the blessing of life and to never forget. Each September 11th, I attach Rick’s obituary to the portrait of the Twin Towers that hangs in my office. Each day the very same portrait inspires me to pay tribute to all those lost in New York City, Washington D.C., and Pennsylvania. I think of those civilian and military heroes and their families who risk their lives for my family’s freedom and safety. My eyes well-up again as I think of dreams on a blue sky canvas, dreams I still have an opportunity to pursue.

In 2013, my wife and I experienced the memorial on Liberty Street with our three young boys. Our wish for them was to understand the tragic reality of the events and to also feel the power of hope and the strength of the human spirit. I urge you and your family to experience the spirituality of the Survivor Tree and to take your mind on a powerful journey of remembrance as you stand beside the twin reflecting pools.

The Tribute in Light is seen in the background of the 9/11 Memorial in September. (Jin Lee photo)