Fracking: Not All It’s Cracked Up to Be

Fracking was all the rage between 2009 and 2014.

The euphoria that enshrined this “new” industry was palpable in the wake of the 2008 credit crunch, as investors clamored for the next economic savior. Hydraulic fracturing was supposed to be it.

Google Trends shows that internet searches for the term “fracking” peaked in August 2013. That’s about eight months after Matt Damon’s environmentally-bent expose of the industry, Promised Land, was released. Take a look at the epic rise in the popularity of fracking…

Search Results for Fracking 2005 to 2016

We too covered the topic of fracking – coincidentally – in our August 2013 issue of Boom & Bust.

At the time, crude oil prices were hovering around $105 a barrel. Natural gas was dirt cheap, having fallen from roughly $20 in 2008 to $3 by August 2013.

Indeed, there was promise in the drilling technologies that were then going mainstream. And we would have been remiss not to have covered the topic. But, at the same time, we saw a plethora of landmines ahead.

For one, Harry’s long preached of the deflationary forces that drag commodity prices lower. And so hydraulic fracking only stood to make economic sense as long as the price of crude oil was sufficiently high.

Now that crude is trading for under $50 a barrel… fracking just isn’t that great anymore!

In full disclosure, I recommended to Boom & Bust subscribers a way to play the fracking story. But it wasn’t what most expected.

In that August 2013 issue of Boom & Bust, I explained how it was too risky to bet on the price of natural gas directly – via an ETF, such as the United States Natural Gas Fund (NYSE: UNG).

I also warned that exploration and production companies – the operations that find, claim and pull natural gas from the ground – were subject to commodity price risk. And I said those companies were too risky to invest in.

As an alternative to those poor options, I recommended an unlikely stock… one that had been in existence many decades longer than fracking. And one that had all the makings of a “Winter Season Shakeout Winner,” as I called it at the time.

I don’t often write “I told you so” pieces… but that stock I recommended, it’s still in our Boom & Bust portfolio at a 54% profit.

Meanwhile, this chart shows the collapse in oil prices (USO), natural gas prices (UNG) and oil exploration and production companies (XOP). These have all already collapsed, between 32% and 56%.

Collapse in Oil Natural Gas and Oil Exploration and Production Companies

So while much of the investment world was gravitating to the new and exotic wonder of hydraulic fracking, jumping in head first, risks be damned, we saw the dangers ahead and charted a more prudent, long-term course for profits.

Adam O'Dell

Adam O’Dell
Chief Investment Strategist, Dent Research

What Killed the Middle Class?

Our middle class has been shrinking substantially since the 1960s and ’70s. Today, their share of wealth is the lowest in the world!

Much of the blame is placed squarely on the shoulders of the cheap Chinese manufacturing jobs and the flood of illegal immigrants into the U.S. workforce.

But what’s the real reason?

In our latest infographic, What Killed the Middle Class? we take a look at some of the most shocking numbers showing how bad it’s really become, exactly what’s been fueling this middle-class revolt and the dangers that lie ahead.

 

Click to Learn More
Categories: Commodities

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.