would be that he is right in the outcome but wrong in the timing...first JRCC goes bankrupt, then within a year NG spikes due to shrinking supplies and the tide lifts the remaining stronger coal stocks.
Many people have been wiped out by getting the direction correct but the timing wrong.
While Cadmium was early with his advice in 2012,he has the trend issues and timing of his message right for 2013.
1. Natural Gas Production - January 2013 natural gas production is lower in Jan 2013 than Jan 2012 according to EIA statistics. The natural gas industry has cut budgets dramatically during the last 12 months continuing into 2013. US natural gas production will go into decline in 2013. As we get multiple months of production declines, then everyone will understand that reduced budgets and drilling are having a big impact on production.
2. Higher prices needed for dry gas industry profitability - An avalanche of investment money in natural gas caused a big gas surplus in 2012 with April 2012 spot prices down to $2 mmBTU. On average, the natural gas producers need at least $5 mmBTU gas to be even marginally profitable. Until prices increase to $5, we will not see any major drilling programs restarted. Investment has flowed out of dry gas and into liquids. Until investors see $5 - $6 natural gas, they will not return.
3. Shale gas depletion - Depending on the well, the annual depletion rate of shale natural gas wells is 30 - 50% annually. This means that there needs to be constant drilling of new wells to maintain production. The cutbacks in drilling over the last 12 months will impact total production in 2013.
4. Gas to coal switching - The utilities will switch back to coal as natural gas prices rise. Currently, the coal stocks are beaten down because profitability was killed in 2012 by $2 - $3 natural gas. The US utilities are quickly switching back to coal as natural gas prices are rising. This summer investors will see much better profitability for coal companies as this trend emerges. JRCC will have the biggest rebound in stock price because the common wisdom now is that coal is dead with JRCC as the weakest coal stock.
Natural gas and coal markets are coming back into balance in 2013 with commodity prices allowing for profitability.
I wasn't wrong except for some anormalcy which causes extreme market aberration which would not last. Beyond that, the market fundamental has turned bullish just as I projected, and in the way I projected.
Early 2012 I was betting on a natural gas price turn around in April and that coal will follow soon. I was betting that both the NG sector and the coal sector will do what they normally do to rebalance supply and demand, namely, curtail production.
Comes out I was right on natural gas, which bottomed at $1.89 on April 19 of 2012 and is now back to above $4.00, more than double. I was right that the coal sector aggressively curtailed production.
But I am deeply disappointed that anormally happened that some how coal does NOT follow natural gas to go back up. It's been one year over due that coal fail to do what normally happens, namely NG goes up and coal goes up as well.
Has economy 101 failed here? I don't think economy 101 will ever fail. At least economy 101 for utilities still work. The are switching from NG to the cheaper fuel coal now, aggressively.
So very soon fundamentals WILL play out that NG goes up and coal goes up as well, and then coal stocks will go up as well.
With aggressive growth of China's coal imports, going from 182M tons in 2011 to 289M tons in 2012, and more in 2013. The supply/demand fundamental MUST play out. I do NOT know who is the one secretly over-supplying the global market, supressing coal price while as China's import grew from 182M tons to 289M tons. That is a puzzle to me. But no one any where in the world has the ability to growing supply by 100M (ONE HUNDRED MILLION) a year.
Coal imvestment needs patience. Holdon to your coal stock. The rewards is great. But the torture is merciless. No pain no gain. No patience no gain.
On this other hand, his actual investments have been disasters, with half his worth in Patriot Coal which went bankrupt and the rest in other weak coal companies which are at all time lows. Whether or not he has the message right, he has nothing to show for it but catastrophe in his investments.
Which was the point of my original post. Maybe he will be proved right in the end, but after he has been bankrupted due to being a few years too early with his call and losing the lot on bankrupt coal stocks.