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0920 EDT Thursday April 27 2006

"We will not stop using oil because we have run out - It will be because we will have found something better"

Sheik Ahmed Zaki Yamani - Saudi Arabian Minister for Petroleum and Minerals 1962 - 1986

Crisis = Opportunity - Ancient Chinese Proverb

Good Morning: Almost exactly 5 years ago in April 2001, our Newsletter bore the headline: "The Coming Energy Bust" - A fairly bold call at the time and in addition, we submitted a top ten list of short sale recommendations, with Enron occupying top billing and in first place as our prime candidate for a short. It wasn't that we were any more psychic than anyone else, or that we knew anything of the gory details that five years later are still being laid bare for all the World to see, we just didn't like the action in the stock and more importantly, having been continually and overzealously convinced on CNN's special reports and other TV documentaries that "The Boys running Enron" really were "The smartest guys in the room", we didn't buy the Infomercial look-alike hype and more importantly, surmised that if they really were the smartest guys in the room, then why was the stock going down rather than up. And, if that wasn't enough, we learned from all that TV hype that Enron had 100 top traders that were being paid upwards of 10 Million a year apiece, ie: $1 Billion Dollars and they were definitely not getting Billion Dollar results, so that was another factor in our judgment. And, even though it took a while for Crude Oil to follow suit, most of the energy stocks succumbed to that overall weakness, in what turned out to be the last and in some cases brutal correction, before the coming Energy Boom, which is still in place today, but now may be way overextended and could also be about to be superceded by a new Energy revolution, that is taking shape with breathtaking swiftness, before our very eyes.

We have previously commented on many occasions, how we felt that opportunities to address the current Energy shortages had basically been squandered since September 12, 2001, when the will to spend whatever it takes to develop alternate sources of Energy, might have been at its zenith. Complacency since that era has finally been replaced by staggeringly high Energy prices that have finally got that good ol 'American Ingenuity' working overtime to come up with the kinds of solutions that have been staring us in the face for years, but were too content to import increasing amounts of Energy, such that Crude Oil imports today are at an all time high and exceed domestic supplies... Now, for the first time, in stark contrast to previous Oil supply shocks and crises, this time the World really is running out of hydrocarbons.

Another reason for our bearishness on Oil stocks back in 2001 was ultimately Oil itself, which actually fell from a peak of near $30 to a low of $16.70 by the end of the year. That's right: That was the last time we may ever see Crude Oil in the teens. But, 'Never say Never' 'Cause there are some new kids on the block that could ultimately change the dynamics of unstable Oil imports forever and even though it may take some time, the Genie is out of the bottle and US Gasoline supplies in particular could eventually become a home grown item for all.
Back in April 2001, the ultimate motivator behind our decision to go with "The Coming Energy Bust Title" was a scenario that played out in early in that year, where, in the face of Energy blackouts and brownouts nationwide and especially in the West with sky high Electricity prices thanks to Enron and Co and the others, who as we ultimately found out, eventually suffered greatly for their market-rigging, ill-gotten gains and outright greed, the opening of a dozen or so new Utilities and ultra-modern and efficient new Energy plants built 24/7, in near record time, substantially alleviated that crisis situation almost overnight, with fairly stunning consequences for a then, over-priced sector.

The following new and vitally important developments could be the eventual writing on the wall forever for US Oil imports, miraculous or not:

1. With the US being the Saudi Arabia of Coal equating to 400 years of supply and half a dozen friendly countries owning most of the rest, the technology exists to produce Ultra Clean Fuels from Coal today, that could eventually power conventional and Fuel Cell powered autos.

2. With Canada being the Saudi Arabia of Tar Sands, with Venezuela and possibly even US Tar Sands also in the running, these huge deposits with reserves that could be in the Trillions of Barrels are being recognized as an increasingly credible long term Energy resource.

3. The US could also be the Saudi Arabia of Oil Shale reserves, a resource that with today's prices and technologies is becoming viable.

4. And perhaps the most interesting development in terms of new immediacy of rapidly increasing supplies that could in time, substantially alleviate the current supply situation and ultimately could contribute to as much as 20% of US total gasoline supplies as will be mandated.

In just the same way as the US responded to the crisis and demand of World War II, with the greatest output and productivity in history, in building entire Liberty ships in as little as 3 days 17 hours, faster than the German U-Boats could sink them and ensured an uninterrupted continual supply chain to Europe, ten thousand planes per month and similar numbers of tanks and armaments: The sleeping Giant US economy responded to the Electricity crisis in 2001 with a breathtaking Utility construction binge in record time, to alleviate that crisis and now it's happening all over again, as astute entrepreneurs and innovative companies, hungry to get in on the ground floor of a brand new business have truly initiated an equally breathtaking Ethanol plant construction boom across the nation, from the heartland to the oceans.

This is going to work. Whether it was the smugness of Brazil's announcement, that it has reached renewable energy self-sufficiency, that finally woke up the sleeping giant to the possibilities, or the President crowing that we can do the same in the US, we should have done all those years ago: It's catching on and taking hold and even though Brazil may have been the lone trail-blazing pioneer, the rest of the World ignored for so long their clean air programs and lack of petroleum based contamination are oh so catching that in time could also bring the US some reprieve..

As for this month's headline... Could this be the coming Energy bust? The highs may be in for now, but it might be folly to call them a little too soon, still the writing may well be on the wall as it accelerates Fuel Cell development as a more mainstream power solution for a future not just for our cars, but for our mission critical facilities, factories and eventually in every home, where a home based Fuel Cell energy unit that will likely be supplemented by Solar and Windpower backup may soon deliver all our energy needs with five nines, 99.999% reliability: Which, in the high tech world of the 21st Century, is what every home and workplace deserves and may be the ultimate demise of utilities, that as soon as we have an ice storm, hurricane or tornado are basically out of business for days, weeks and sometimes, even months.

Trade Well
From the Desk of Savant

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