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0920 EST Thursday February 10 2006

Good Morning: In every marketplace, sooner or later supply demand rules and in spite of the recent anxieties that caused an example of an artificial run-up in Energy prices, espeically Crude Oil to within $4 of its all time record highs, the action was symptomatic of Natural Gas's contrived run-up to new all time highs, in what looked to be an organized short squeeze prior to one of the most devastating selloffs witnessed in some time. A while back, with seme heavy short postions in Natural Gas on MODAR, we predicted Gas prices might see $7 within this quarter and this week that finally occured with the unseasonably warm weather so far this year. Meanwhile the continued build in Crude Oil and other Energy inventories is at multi-year highs, which we also suggested would occur in due time as most Oil producing nations have never had it so good and our pumping out all they can to capture what they must know may be only temporarily excessively high prices. When you control the spigot, you have to pump at maxiumum output and make hay while the sun shines, because common sense dictates that if you truly have the reserves, how can you lose. Getting high prices today, might enable you to expand the reserves you have through renewed development and exploration, which is what is now happening around the World and a truly unprecedented almost frenetic pace. Every day, Modar is picking up on new names making commericial discoveries, laying gas pipelines and drilling like never before. Necessity is the mother of invention and Nature continues to deliver it bounty as it always has... Still, in spite of this short term windfall, it does not detract from the urgency of the situation we have outlined on occasion here and that was amplified, by the news reports recently, that Mexico's production rates as more or less the 5 Oil producing and exporting country in the World, could begin to decline towards the end of this decade, without additional major discoveries. Some of their largest fields like the Cantarell are using very advanced niitrogen gas technologies to maximize output, but this and adjacent fields are destined to run dry within just a few decades.

Equities were a liittle disappointing late Thursday having run up quite dramatically since our bullish turnaround call early Wednesday am. Since Crude is getting close to the psycologically important $60 level, it will be interesting to see how things play out and whether this or a break of $60 will be enough to turn Equities higher again. Friday will likely be an important day. A strong close Friday could set stocks up for a strong Valentines week ahead. The Dow still appears to be gunning for 11,000, in spite of yesterday's pullback. We just ran into some resistance on a number of indices, so we will have to see how much they back off from here and whether this is just a pause or not.

Gold and Silver remain at important levels and renewed Dollar weakness, should it ensue could become a postive influence going forward as it could for Equities too. So these influences described above could have important outcomes in the days ahead we'll be watching for.

Trade Well
From the Desk of Savant

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