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The Oil of the 21st Century.

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The Oil of the 21st Century
Thursday, 19 January 2012 – Melbourne, Australia
By Kris Sayc

In today’s Money Morning: … more taxpayer money needed to bail out banks and governments…having an emergency plan…there are still profitable ideas…a part of the world set to boom…

The Oil of the 21st Century

Yesterday the papers splashed the latest warning from the World Bank.

The Financial Times reported:

“Predicting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, World Bank economists said that if financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune.”

There’s no doubt there will be another downturn. The pieces are already in place for it to happen. The only unknown is when.

Of course, the knee-jerk reaction is to say, what would the World Bank know? It never gets things right. But it is worth remembering what the Bank wrote in 2007…

“A soft landing remains likely, but the global economy has reached a turning point and many factors could result in a more pronounced slowdown. A faster-than-expected weakening of housing markets in high-income countries could generate a much sharper downturn and even recession, with potentially significant effects for developing countries. Much slower growth would likely cause commodity prices to weaken more than already projected…”

But we won’t big-up the World Bank too much. After all, the guys over at our sibling newsletter The Daily Reckoning banged on about the economic meltdown as early as 1999.

Besides, it’s important to understand why the World Bank is making this prediction. It’s not to warn investors about the risks of investing. It’s not to admit that the world is now paying for the mistakes of the past. No. It’s simpler than that…

It wants more taxpayer dollars.

Or rather, it wants governments to give taxpayer money to the International Monetary Fund (IMF) so the IMF can give more cash to broken banks and corrupt governments.

If you needed any proof, right on cue the following report appeared in the FT yesterday:

“The International Monetary Fund has asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies, which it estimates will generate demand for bail-out loans totalling $1tn over the next two years.”

Coincidence? No.

It’s the latest attempt by meddling bureaucrats to stall the inevitable: a full-scale economic collapse. Whether it’s a repeat of 2008 or something much worse is anyone’s guess.

That’s why it’s vital you have an emergency plan…

Building Wealth From Gas

Last year, Australian Wealth Gameplan editor, Dan Denning suggested where you should have your assets to prepare for “complete financial collapse”.
Dan’s advice was to move into assets that had real value… assets you could use to sustain life and trade. The break-up was partly tongue in cheek… but the idea behind it was not.

The one problem is that it’s almost impossible to know when the collapse will happen.

Will it be this year? Or next year? Or will it be in 30 years…

That’s why even though you may have a big picture, macro-economic view on the state of the economy, it’s still important to think about the small things. And that means earning a living and building your wealth through the right investments… regardless of when the collapse happens.

Remember, despite the poor state of the economy, businesses and ideas still carry on. Business owners and managers still look to make profits… entrepreneurs still think of new ideas and take risks… and, share prices can still go up.

It was this kind of thinking that got Dan interested in the shale gas industry. And in particular, three stocks he backed last year to benefit from this booming industry.

If you’re not familiar with shale gas, in simple terms it’s gas that’s trapped in deep rock formations. It’s different to conventional gas. With conventional gas, the gas forms in porous rocks and can be easily “sucked out” by drilling into the rock.

But with shale gas, the rocks aren’t porous. They need to be cracked apart (fractured) to allow the gas to escape. Only then can it be “sucked out” through the well.

It’s this kind of innovation that provides benefits to shale gas investors (such as the readers who invested in Dan’s recent stock tips) and to consumers. As this report from Bloomberg notes:

“A shale-driven glut of natural gas has cut electricity prices for the U.S. power industry by 50% and reduced investment in costlier sources of energy.”

Buy Gas While the Price is Low

Yesterday we mentioned how the natural gas price was back to 2008/09 levels. Overnight it has fallen further, to just USD$2.49 per million British thermal units.

At some point you’ll see a floor under the gas price. After all, with all the money spent on exploring and producing the stuff, gas producers aren’t going to give it away for free.

That’s what makes taking a punt on natural gas (and especially unconventional natural gas) a good bet right now. The best time to buy an asset that’s about to leap in demand is when prices are low. Compare that to oil which is still at USD$100.

The longer things stay this way and with more big gas discoveries, there’s a big chance natural gas will be the energy source to replace oil. And when that happens you can expect a boost to the natural gas price and big rewards for the companies and investors who take a punt while the price is low.

Cheers.
Kris.

P.S. We’ve written about shale gas for some time. But you’re mistaken if you think it’s too late to join in the boom, because it’s only now starting to hit the mainstream. As a report in today’s the Age proves: “Australian shale assets ‘next big thing’ for investors”.

The report notes, “While shale assets in Texas sold at $US25,000 an acre this year and a holding in Ohio and Pennsylvania changed hands at about $US15,000 last month, shale properties owned by Australia’s Beach Energy can be bought for $US406 per acre…”

Could Aussie shale assets increase 6,057% to the same price as Texas shale assets? Why not? To find out which shale stocks Dan Denning has picked to benefit from the shale gas boom, click here for a no-obligation trial to Australian Wealth Gamplan

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