Sharky:

Thank you for the kind words.

I am forwarding a copy of Stephen Leeb, Ph.D's missive of today. Though not directly regarding Connacher, in my opinon, it strikes close enough to the interest of all CLL annd investors in oil, that it deserves to be seen by all members of this forum.

Stephen Leeb is one of the foremost investment advisors in the U.S.

Brian

Market Update
September 15, 2008

Short-Term Key 4.8
Long-Term Key -40

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In this week's update...

***** The last lender standing.
***** The last insurer standing.
***** Last chance for cold-blooded bargain hunting?
***** The last strong currency.

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TIME TO PLAY VULTURE IN FINANCIALS

The financial markets reacted today to the drama that played out over the weekend and this morning: Lehman bankruptcy, Merrill Lynch takeover, AIG troubles... With events moving so quickly these days, we think it is better to focus on certain outstanding opportunities rather than the market as a whole. We continue to believe the market will stay in a trading range, provided the authorities can keep control of the situation and stave off a serious recession. Choosing to see the glass half-full, we expect the authorities will succeed.

That said, with companies going under left and right, we think it's prudent to look at those stocks that will benefit from the situation. Three financial stocks stand out on that score.

The first is Wells Fargo (WFC), which should post solid profits this year and dramatically better ones in 2009. What other lender can home buyers turn to for a mortgage anymore? Wells may soon be the last lender left standing.

In this same category we must also include US Bancorp (USB). While not a mortgage originator, USB is a bank of the highest quality that has maintained its high rating throughout the current credit crisis. It will surely pick up business from its less fortunate peers.

We must also recommend Berkshire Hathaway (BRK/B). It has had a bit of a rough time recently, which surely won't last. Hurricane Ike will probably cost the insurance companies along the lines of $20 billion, on top of the damage inflicted by hurricane Gustav.

In case you hadn't noticed, insurance companies are also financial stocks. Many of them, such as AIG (which is also on the ropes) will have a hard time paying the massive hurricane-related claims. Similar to Wells, Berkshire could be the last insurer left standing. It is certainly the best capitalized and in a good position to take advantage of its competitors weakness. That may sound a little ghoulish, but our job is to give you the best investment advice, and the best advice is to stick with Berkshire.

LAST CHANCE FOR BARGAIN HUNTING?

If you kicked yourself for not buying more gold, oil, and other commodities in the last quarter of 2006, and again in the last quarter of 2007, then we're glad to announce that Christmas has come early this year. The retreat in prices has made stocks in these industries more oversold than they have been in quite a long time -- and certainly much more of a bargain than at any time this year.

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Gold and oil in particular have retreated even more than we expected. And while it is not our habit to predict the bottom in any market, we are nearly certain that the minuscule remaining downside in these commodities is many times overweighed by the tremendous upside potential. Our analysis (unlike that of many sellers last week) is based not on emotion but on cold-blooded reason.

For oil, the bullish case could not be more straightforward. The macro picture depicts growing worldwide demand for oil that stretches all the way from the foreground to the horizon. Notice, for instance, that just 2.5% of Chinese and Indians currently own automobiles today, compared with 14% of Brazilians and over 80% of Americans. With growth in Chindia and Brazil increasingly defined by consumer materialism, global demand for oil and steel cannot stop rising until 80% of families in the developing world also own four-wheeled, gas-powered vehicles.

What stalled the long-term trend this year has been slower growth in the developed world, which admittedly could affect developing world growth as well -- to a small extent. However, unless a full-scale depression or World War breaks out, the developing world will continue to grow at a very healthy clip.

Meanwhile, in the developed world, the oil consumption has been falling at a rate which frankly cannot be sustained. If consumption continued slowing at this rate, then in five years the U.S. would be using 25% less oil than today. That simply cannot happen.

But even if it did, global oil consumption would still be higher in 2008 than 2007, and it would be higher in 2009 than this year (again barring a severe recession).

Furthermore, we must remember that most of the world's surplus natural resources are located in the developing world -- in nations such as Russia, Saudi Arabia, and Iran. Can we really feel secure about having to buy from such dealers? One more political disaster and oil supplies could be substantially disrupted.

Besides, the other problem with getting oil from developing nations is that they are developing. As with Chindia, most resource-rich nations are on the path towards consuming ever higher amounts of their own resources. Eventually, they will need all their oil themselves.

For example, a John Hopkins professor pointed out in a research paper 18 months ago that, if Iran keeps growing at its current rate, it will run out of oil to export by 2015 (less than 7 years from now) and will need to import oil from elsewhere. But with other oil-producing nations also growing, what nations will be left to buy from?

Again, we can't say precisely when oil prices will bottom and reverse course, but we can say with near certainty that if oil stays under $100 a barrel, many major oil projects will be put on hold or canceled.

We've already used up most of the cheap oil in the world. Now we are forced to turn to fields that take a lot more money to develop and work. In the Canadian tar sands, for example, most new projects will be unprofitable if oil prices go below $100. Same goes for projects in Angola. If new projects are shelved because oil prices are too low, we will see huge problems down the road. Without new supplies to meet rising demand, prices will shoot up all the more rapidly. Instead of rising $100 in two years, oil could jump $200 in one year.

All that said, we realize it has been a tough year for all of us who have been long oil stocks, and the hardship may not quite be over. Nonetheless, the best thing you can do now is hold fast to your oil investments. Once this brief period ends, you will be rewarded many times over for your patience.

Turning now to our other favorite besieged commodity...

THE MONEY OF LAST RESORT

Our case for the Midas metal is slightly different than for oil. We didn't expect gold to fall much below $780, yet it overshot our target by roughly $15 on the downside last week.

Rather the weakness in gold seems as irrational as the weakness in many big, undervalued cheap stocks recently. Energy stocks especially fall in to this "irrationally cheap" category. In fact, even if oil was selling for $90, oil stocks such as ConocoPhillips (COP) and Schlumberger (SLB) would offer tremendous value at today's prices.

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The most obvious explanation for the irrational sell-off in both energy stocks and gold is forced liquidation by big-time players who bet on the wrong side. Gold has come to the rescue of such players, just having some gold can benefit everyone in times of great financial stress. However, we are reaching the point where the selling must end.

Some commentators argue that gold's weakness is due to a stronger U.S. dollar -- a laughable argument if we ever heard one. What investor in his right mind would judge gold "too risky," despite its having survived as a currency and safe haven for thousands of years, and flee to the "security" of a currency whose value has been falling for a century, and which is backed by a government that is a trillion dollars in debt and rapidly creating more debt while in the midst of the worst financial crisis in history? It boggles the mind.

Truth is... the dollar has NOT been strong. Rather, the Euro has been weak.

Recall what we have been saying in recent updates about Russia. Thanks to its recent invasion of Georgia, Russia now has a stranglehold on energy supplies to Western Europe. Moreover, there seems to be precious little the U.S. can do about it. In this situation, can you blame investors for dumping Euros and buying dollars?

In fact, we are surprised the Euro has held up as well as it has. The only explanation is that investors realize the dollar is not in good shape either, so they are having to choose the strongest of two weaklings.

Eventually, the world will realize that gold is a currency no government can destroy. And when they also realize there's not very much gold to go around, its price will shoot up.

The hard part is waiting for the world to wake up. It may take a little more time. Nonetheless, it would be almost unprecedented for gold not to do very well in the kind of financial storm we are having today.

The only other potential safe haven would be the Swiss franc. Switzerland has traditionally been independent and a safe storehouse of money in tough times. But though the franc has held up fairly well, the Swiss too are dependent on supplies of natural gas and oil coming from Russia's sphere of influence. Since the turn of the millennium, the franc is no longer backed 40% by gold, as it once was, making it less of a haven. And on top of that, real interest rates have turned negative in Switzerland, making francs a losing investment.

With no other strong currencies that can compete with it, gold will surely have its day in the sun. We can't say exactly when it will happen, but when it does it will make last week's gold sellers look as foolish as the Bank of England was when it sold a large chunk of its gold reserves for less than $300 an ounce in the late 1990s.

Until next week,

Stephen Leeb, Ph.D.
Editor
The Complete Investor