Wednesday, August 26, 2009

Energy Industry Icon Re-Affirms Position that U.S. Equity Market Valuations Overdone: U.S. Energy Industry at Major Risk

/PRNewswire/ -- Karl W. Miller, a senior energy executive and institutional investor, today issued the following statement through his advisors, Re-Affirmed his position that U.S. Equity Market Valuations are Overdone and the U.S. Energy Industry is at major risk.

Mr. Miller has made it clear in prior research that there will be no meaningful economic recovery to sustain any equity market recovery until the defunct real estate holdings in the residential and commercial marketplace are properly vetted, written down to net realizable value, and sold off of the banks, hedge funds and insurance company books. This will mean bankrupting hundreds of institutions, which are already technically insolvent.

A recovery based upon negative net worth, and the U.S. Government underwriting the retail consumer and institutional marketplace on all fronts, including a ludicrous renewable energy plan and unrealistic and un-achievable health care proposal will not happen.

Retail investors should not be investing in the equity and debt markets at the current time, while the major banks, hedge funds, and private equity funds are insolvent on a majority of their asset based holdings. They require a rising equity market to float their portfolios and pull the retail investor back into the market to fill the gap. Unfortunately, the retail and high net worth investor is essentially insolvent as an investor class and the old model does will not work.

We need quick and brutal cleansing of the U.S. Financial system, and renewing Ben Bernake's term as Fed Chairman means nothing to solving the market problems and is window dressing. Retails investors should not be lured into purchasing equity or fixed income instruments until we essentially "bankrupt the US banking system" and hit the reboot button, which will have the effect of flushing out the illiquid hedge and private equity funds who are hanging on by a thread.

All of this is important, because a majority of the financial institutions can't purchase or operate critical energy infrastructure assets so desperately needed. This is what seasoned management does alongside of distressed capital investors. Unfortunately, these experts can't begin to work until the system is flushed.

The U.S. Renewable energy industry is on its rear end, and one need only ask T. Boone Pickens, who spent millions on marketing a renewable energy plan only to fail dramatically. If anyone wants to purchase distressed wind turbines, Mr. Pickens has hundreds of turbines scheduled for delivery with nowhere to go.

We have insufficient infrastructure in the U.S. to include Transmission lines, natural gas and oil pipelines and the "pork" energy plan that has come out of Washington does nothing to solve that problem.

So, where do we stand, and what should investors do? Sell the financial equity investments and get to the sidelines quickly, as the carnage is coming and is not for the faint of heart. It is best left to true distressed asset buyers and operators who know how to clean up what has become the largest financial and asset disaster in U.S. history.

Again Mr. Miller reiterates that China is irrelevant at the current time, given the fact that the U.S. is financially broke. Chasing China, Asia or Europe in the equity market rally has no relevance on the U.S. problems.

Yes, Oil is dollar based, but has no linkage to natural gas in the U.S. as it does in Europe and Asia. Essentially, Oil and Natural Gas are decoupled in the U.S. and investors should not chase a financially driven oil price when it has nothing to do with the fundamentals on the ground in the United States. Natural Gas is cheap and getting cheaper, as there is no demand. Thus, the pipeline and natural gas producers are suffering and overvalued as well. Sell them if you own them.

Mr. Miller retains a sell recommendation on renewable energy companies. We will see many of these names, which are highly levered fail and/or be purchased at distressed prices when the bust comes, and it is sure to come.

Mr. Miller re-affirms that investors should not confuse Warren Buffett's statements regarding deployment of capital versus sitting on cash with intelligent timing of investments, especially in the energy sector.

Be patient, let the assets get sorted out then make decisions about deploying capital. There is plenty of value and risk to go around.

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