FLOUNDERING BANKS TURN TO ENERGY MARKETS

Long term demand for energy commodities looks pretty certain. But in the past 10 or 15 years investment institutions have come to depend on predictable quarterly growth while in the short term energy commodities are subject to all kinds of unpredictable forces - economic, political and even meteorlogical - that make them unreliable investments.

What the institutions are starting to think about, however, is that volatility wisely handled can create enormous profit possibilities. Especially when the long term outlook is so very up.

As Investment Banks Embrace Energy Trading to Offset Credit Losses, Balancing Risk Will Be Key
Lauren Tara Lacapra, November 9, 2007 (AP via Yahoo Finance)

WHO
Institutional investors like Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs

Amid the mortgage madness, Goldman Sachs made out while Bear Stearns, Merrill Lynch and Citigroup went south. How will they do in the energy market?

WHAT
Institutional investors are shifting resources into energy markets in response to falling values in credit markets.

WHEN
Although the general expection is that energy investments are a good long term bet, some believe the price will drop as the Federal Reserve Bank lowers the interest rate and the stock market rises.

WHERE
The institutions have increase hiring in the energy commodities area.

WHY
Any gains in the institutions made in commodities markets have been lost from the downturn in the subprime mortgage market.
The institutions are beginning to develop comprehensive and long term strategies for energy commodities investing.
Investors on the whole say demand for energy and commodities is driven by market forces like population growth and economic development that are not likely to abate in the foreseeable future, especially in the developing world.

Energy looks like an even better bet than mortgages.

QUOTES
- Phil Flynn, analyst, Alaron Trading: "It's a market that can't be ignored…If you're going to have a well-rounded, diversified portfolio you can't pretend like the energy market doesn't exist."
- Geoff Blanning, Head of Emerging Markets Debt & Commodities, Schroder Investment Management: "I don't think anyone's late if they're investing today…We've only just started; prices in commodities went down for the last 25 years and it's only recently that they've started to recover."
- James Cordier, president, Liberty Trading Group: "The higher the market goes, when we do get a correction -- and we will from some level -- it will be hard and rapid…”
- Matt Zuck, portfolio manager, SKBA Capital Management: "We live in a complicated world…It's difficult to say you've got some equation that's going to figure out everything that's going on."