The good news that everyone has been waiting for apparently came in the form of the recent better than expected jobs report. With the official unemployment rate lowered to 10.0% from 10.2% (Bloomberg, Dec. 2009), investors assume that the economy is improving. As a result, the feeling is that the Fed will accelerate the timetable for its highly anticipated "exit strategy," which will supposedly withdraw the excess liquidly that has driven the dollar lower and gold higher. This belief propelled the U.S. dollar to one of its best days in recent memory and set up gold for a fall of over $100 per ounce. However, the conclusions sparked by the jobs report are wrong on several counts.

First, the economy is not improving. All that has happened is that we have gone deeper into debt by borrowing and spending more money that we don't have. A closer look at the jobs numbers confirms that the areas that showed the greatest strength were those that benefitted the most from federal monetary or fiscal support. The Fed cannot remove the liquidity without cutting the legs out from under this phony "recovery." The Fed likely knows this, as evidenced by Bernanke's subsequent testimony. As it has shown in countless past episodes, the Fed has no intention of removing the punch bowl.

Even if Bernanke & Co. were to slowly tighten, it would be too little too late to help the dollar or restrain gold. To make a meaningful impact on the trajectory of these mega-trends, the Fed would likely need to pursue aggressive interest rate hikes and sell down its holdings of treasuries and other toxic debt. However, such a sensible, yet politically untenable, policy seems completely off the table. Even if the Fed did pursue such a strategy, the dollar might rise initially, but would likely sell off as the phony economy collapsed as a result of higher interest rates and tighter monetary policy.

We have once again made the same trade-off we did during the last recession. We have decided to defer the pain of an economic rebalancing by adopting aggressive monetary and physical stimulus which merely lays the foundation for an even greater economic disaster down the road. It's shocking how few observers note the repeating pattern.

The vast majority of economists take it on faith that the stimulus can be withdrawn without pushing the economy back into recession. But based on the distortive affect of stimuli and bailouts, our economy has adapted to a climate where cheap credit is plentiful. As a result, our economy is less able than ever to survive in a world in which stimulus is removed. But eventually, the cheap credit will dry up. Not because the Fed decides it should, but because our foreign creditors stop lending. When that happens, our downturn will be even more debilitating in the future than it was in the past.

We will never have a sustainable recovery until all the imbalances are allowed to be worked out, but as long as the government keeps stimulating, this will never happen. Instead, we will have a string of crises escalating in magnitude until a complete collapse of the dollar brings the process to a halt.

In the meantime, I believe pullbacks in the price of gold should be viewed as buying opportunities, and any rallies in the dollar as a chance to add to your foreign investments. Remember that in trending markets, the biggest moves usually occur in the opposite direction, at least until the climactic end. This keeps the speculators in check and the timid on the sidelines. However, those who understand the fundamentals will stay with the trends until the doubters finally throw caution to the wind and join the party -- just as it's getting ready to end.

Natural gas is a vital component of the world's energy supply today and it is believed by many to be the most important energy source of the future. Natural gas is abundant worldwide, has multiple applications across many sectors, and is one of the cleanest, safest and most environmentally friendly of all energy sources. Once considered largely a waste product of oil production, natural gas is currently experiencing a huge increase in demand around the world.

As recently as 50 years ago, worldwide natural gas consumption was relatively insignificant. Today, natural gas meets more than 20% of the world's primary energy requirements and offers great opportunities for developing economies looking for new sources of power. (Aruvian's Research, July 2009)

What is Natural Gas?

Natural gas is colorless, shapeless, and odorless in its pure form. Natural gas is combustible, and when burned, gives off a great deal of energy. But unlike other fossil fuels, natural gas is clean burning and emits lower levels of potentially harmful byproducts, such as carbon dioxide, into the air. Demand for natural gas could increase dramatically as global climate change legislation increases demand for low-carbon fuels.

Natural Gas Supply Chain

Found in reservoirs underneath the earth, natural gas is commonly associated with oil deposits. The process of locating natural gas deposits has transformed dramatically over the last 20 years with the advent of advanced new seismic technology.

Once a potential natural gas deposit has been located by a team of exploration geologists and geophysicists, it is up to a team of drilling experts to dig down to where the natural gas is thought to exist. These innovations and techniques both decrease the cost, and increase the efficiency and success rate for drilling natural gas wells.

Once brought from underground, natural gas is refined to remove impurities like water, other gases, sand, and other compounds. Some hydrocarbons are removed and sold separately, including propane and butane.

After refining, the clean natural gas is transmitted through a network of pipelines. Transportation of natural gas is closely linked to its storage; excess gas can be stored underground for an indefinite period of time.

Uses of Natural Gas

Natural gas has many uses residentially, commercially and industrially. Without any way to transport it effectively, natural gas discovered pre-World War II was usually just vented into the atmosphere, burnt, or left in the ground. After World War II welding techniques, pipe rolling, and metallurgical advances allowed for the construction of reliable pipelines. Once the transportation of natural gas was possible, new uses were discovered, including:

• Heating homes
  
  
• Operating appliances, such as water heaters and oven ranges

Natural gas is one of the cheapest forms of energy available to the residential consumer. Historically, it has been much cheaper than electricity as a source of energy. The Department of Energy (DOE) estimates that in 2007, natural gas was the lowest cost conventional energy source available for residential use. According to the DOE (2007), natural gas costs less than 30% of the cost of electricity, per Btu (British thermal unit).

• Commercial uses. The commercial sector includes office buildings, schools, churches, hotels, restaurants, and government buildings. The main uses of natural gas in this sector include space heating, water heating, and cooling.
  
  
• Industrial uses. This includes providing the base ingredients for such varied products as plastic, fertilizer, anti-freeze, and fabrics. Industry is the largest consumer of natural gas, accounting for 25% of natural gas use across all sectors.

Because of its low cost and clean burning nature, natural gas has become a popular fuel for the generation of electricity. There are two primary forces at work that serve to increase today's demand for natural gas in electric generation:

1. The increased demand for electricity in general

2. The retirement of old nuclear, petroleum, and coal powered generation plants

Investing in Natural Gas

In addition to having numerous uses, natural gas has caught the eye of investors as a result of changes in the global economy and the environment. Due to supply increases from significant natural gas discoveries, and relatively low demand caused by the state of the global economy, natural gas prices are currently low. But we don't expect them to stay that way for long. With many governments threatening to cap industrial carbon emissions, corporations are being forced to explore alternative energy sources, and natural gas is far and away the most cost-efficient option.

There are three sectors of natural gas to look at for investment purposes, the explorers and producers, the transporters (aka the pipelines), and the ETFs. Our featured companies represent producers and pipelines. Both are in foreign countries that show a great deal of promise within the natural gas industry. In addition to the investment merits of these companies, their share prices will benefit from a continued decline of the dollar, which we believe is inevitable.

The first featured company is based out of Canada, where there is a very strong market for natural gas. In addition to Canada's abundant supply increasingly being used locally, the vast majority of natural gas imported by the U.S. comes from Canada (Energy Information Administration, 9/29/2009). The second featured company is located in Australia, which is also a significant producer, consumer and exporter of natural gas, and is expected to grow. It is estimated that Australia's underlying gas demand will grow an average of 4% annually over the next 10 years due to increased use of gas in electricity generation, mining and energy-intensive refining. (ABARE Energy Update, 2008)

FEATURED COMPANIES

Company #1

Company Description

Company #1 is a natural gas exploration and production company. We like this company for its high quality assets, profitable business model, proven track record, and current yield of 12.5% (Bloomberg, Dec. 2009). With increased government regulation on carbon emissions imminent, new energy sources are coming into high demand, and we think Company #1 is well positioned to help meet that demand.

Investment Highlights

This company's assets have a long reserve life and are approximately 100% natural gas and natural gas liquids. It discovered and developed practically all of the high quality natural gas assets it currently owns (Q3 Press Release, Nov. 11, 2009), generating profits that could be difficult to match through acquisition activity.

The company has a historically proven business model designed to grow its value, assets, production and income. It achieves these goals by operating on three basic principles. First, it uses its technical expertise to achieve strong returns through the development of internally generated ideas and projects. Second, it keeps up a low payout ratio to fund its growing inventory. Third, its core asset base is comprised of quality, long life natural gas reserves. Company #1 closely monitors costs to be sure that capital is only invested when good returns can be generated.

Company #1 has a low operating costs because it produces from reservoirs that do not have the added cost of water or sour gas disposal. Additionally, its wells have relatively high productivity.

Risks

Risks specific to this company include the possibility of dry wells, regulatory issues, and royalty taxation. Please also review the general risks of investing in natural gas companies, which are delineated at the conclusion of this article. Call a broker to discuss these risks before making any investing decisions.

Conclusion

We believe Company #1, with its ten year track record, is an excellent natural Energy Trust. We find that a solid current yield, combined with exceptionally high quality assets, gives this Company a positive outlook.

Company #2

Company Description

Company #2 is a natural gas infrastructure business, owning and/or operating upwards of $8 billion in gas pipelines and distribution assets. We like this company for its unrivalled portfolio, attractive growth opportunities, stable cash flow, excellent internally managed workforce and a solid current yield of 9.4% (Bloomberg, Dec. 2009).

Investment Highlights

This company is the biggest mover of gas in its region by pipeline length, capacity and quantity. Its integrated portfolio creates revenue through unique operating synergies. It oversees and controls all of its assets. Additionally, it manages a natural gas distribution company.

The company's strategy is designed to provide maximum value to security-holders. It aims to achieve this by concentrating on natural gas infrastructure assets in the expanding gas market and improving its portfolio, drawing revenue and synergies from its considerable asset base, seeking opportunities that make use of its experience and skills, and keeping up a strong balance sheet.

Company #2 has a wealth of attractive growth opportunities and a strong balance sheet. Growth highlights for 2009 include an expansion of several natural gas pipelines, numerous attractive investments, and the construction of a new gas pipeline. In 2009, its balance sheet was strengthened by selling a portion of its assets that were showing minimal growth and also by completing its 2010 debt refinancing.

Risks

The risks of investing in Company #2 include the possibility of damage to the infrastructure (fires, explosions, etc.), and competition within the natural gas transportation industry in Australia. Please also review the general risks of investing in natural gas companies, which are delineated at the conclusion of this article. Call a broker to discuss these risks before making any investing decisions.

Conclusion

The estimated increase in demand for natural gas in Australia, along with this company's exceptional assets, makes a strong case for investment in Company #2. Its dividend payout is currently set at $0.16, giving it a solid yield of about 9.4% (Bloomberg, Dec. 2009). We think this is a good infrastructure option for investors looking to add natural gas to their portfolios.

General Risks of Investing in Natural Gas Companies

1. Operating risk: There is always danger of encountering operational issues, technical problems, geological interruptions, other disruptions and unexpected delays.

2. Commodity risk: These companies are exposed to the volatile price of natural gas. There is always substantial risk to the downside due to this exposure. The timing and magnitude of commodity price fluctuations are always significant risks that, in most cases, strongly affect the value of companies focused on a specific commodity, such as natural gas.

3. Industry risk: Companies in the natural gas industry are subject to price and supply fluctuations, and fuel prices, which will vary with supply and demand factors including weather, economy, and political conditions.

4. Country risk: There is never any guarantee that existing laws, regulations, rules, permits and licenses will not be changed, updated, altered or withdrawn in the future. Governments can always make changes to laws, regulations and rules.

Investing in foreign securities involves additional risks specific to international investing, such as currency fluctuation and political risks. There can be no guarantees of success in pursuing any of the strategies we recommend, or that any of the specific companies will gain in value. Risks include an economic slowdown, or worse, which would adversely impact economic growth, profits, and investment flows; a terrorist attack; any developments impeding globalization (protectionism); and currency volatility/weakness. While every effort has been made to assure that the accuracy of the material contained in this report is correct, Euro Pacific cannot be held liable for errors, omissions or inaccuracies. Euro Pacific has not independently verified the information supplied by the company, and cannot make any representations as to its accuracy. This material is for private use of the subscriber; it may not be reprinted without permission. The opinions provided in these articles are not intended as individual investment advice.

China, China, China. The financial media seldom talks about any Asian country other than China.

China is the fastest-growing country in Asia and there are more Chinese stocks listed on U.S. stock exchanges than any other Asian country. (Zee News, December 08, 2009)

There are, however, opportunities in neighboring Asian countries, and I want to expose you to what I believe are two of the least appreciated and potentially most profitable investment opportunities in all of Asia.

I'm talking about Vietnam and Indonesia.

Vietnam, the Next China

I consider investing in Vietnam today to be the equivalent of investing in China 10 years ago. Who wouldn�t like to go back 10 years in time and invest in China? That is how dynamic and full of economic promise Vietnam is today.

Like China, Vietnam is a communist country, and while it got a much later start, it is now copying China by embracing capitalism with a vengeance.

Financial reforms have dramatically changed the business landscape in Vietnam, hundreds of government-owned companies were cited as being privatized (NY Times, March 28, 2007), and the opening of the Vietnam stock exchange is attracting billions of foreign investment dollars.

Vietnam has abundant natural resources and has historically been a large exporter of rice, oil, cashew nuts, and black pepper.

Thanks to its young, hard-working population of approximately 90 million citizens (CIA World Factbook, July 2009 est.), extremely low wages, and strategic location near China, Vietnam is rapidly becoming the low-cost manufacturing center of Asia.

Even Chinese companies are now offshoring some of their manufacturing to Vietnam. An executive at one of the largest branded shoe manufacturers in the world told me that the labor costs at their Vietnam factory were more than 40 percent lower than at its China factories.

As China prospers, it is likely going to outsource even more of its manufacturing to Vietnam and enrich its economy and citizens.

Indonesia, the Slumbering Asian Tiger

Can you name the four most-populated countries in the world? The first three are easy - China, India, the United States.

The fourth may surprise you. It is Indonesia. Indonesia is a country of 17,000 separate islands that have historically straddled trade routes that have been important for centuries.

Like Vietnam, Indonesia is rich in natural resources, but its wealth comes from not only agricultural goods but also from energy and mineral resources such as oil, natural gas, gold, and copper (CIA World Factbook, December 2009). In fact, Indonesia is the only Southeast Asian member of OPEC.

The vibrant internal market makes the country less dependent on exports than many Asian markets. In fact, Indonesia's service sector is larger than its industrial and agricultural counterparts. (Seeking Alpha, Stockerblog, July 24, 2007)

In the second quarter and third quarter of this year, Indonesia grew at a 4 %-plus annualized rate (Index Mundi, September 17, 2009), making it the third-fastest-growing economy in Asia behind China and India (Jakarta Globe, August 11, 2009).

Indonesia is growing so fast that Morgan Stanley suggested it should be included with Brazil, Russia, India and China in an acronym expanded from BRIC to BRIIC (Bloomberg, June 15, 2009).

Two-thirds of that growth is coming from domestic consumption instead of exports, so Indonesia has been largely immune from the global slowdown (Barron's, June 29, 2009).

The bad news for American investors is that there isn't a single Vietnamese stock listed on any U.S. exchange and you actually have to travel to Vietnam to open a brokerage account with a Vietnamese broker to buy/sell Vietnamese stocks. That leaves ETFs as the only practical way to invest in Vietnam.

There are two large, slumbering Indonesian telecommunications stocks listed on the NYSE, but I wouldn't touch either of them. However, there are many good opportunities in Indonesia, so talk to a broker who can invest directly in the country and get recommendations for solid Indonesian companies.

Keep your eyes on China, but don't overlook its Asian neighbors; especially Vietnam and Indonesia.