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Jonathan Yates
Is an ETF the Best Way to Profit from Obama’s “War on Coal”?

Since President Obama’s recent energy speech, securities in the coal sector have been hammered.  Many have stated that the new programs favor natural gas, “The Clean Energy,” over “King Coal.”   It has been difficult enough in the sector already, with a number of bankruptcies.  As the chart below shows, the exchange traded fund for coal (NYSE: KOL) and natural gas (NYSE: UNG) have been trading in an inverse relationship, as a result.

But the global demand will increase, just not within the borders of the United States.  To utilize natural gas as a fuel requires three sets of pipelines.  The first takes the fuel from the field to be processed.  From there, it goes to the distributors.  Finally, it has to go by pipeline to the consumer or the company using the fuel.

That it is very complex and expensive, the opposite of coal.  Coal can literally be carried in a sack by an individual to their home to be used for cooking or heating.  As a result, the most populous nations in the world, such as India and China, are expected to increase the demand for coal.

China, already the world’s largest user, is to expected to increase its demand for coal.  At present, China uses almost half of the coal produced in the world.  When the Chinese economy starts rolling again, its need for coal will increase, too.

The best way to play this is probably the exchange traded fund for coal, Market Vectors Coal (KOL).  It is certainly cheap enough, down 30% for the last 6 months of market action.  As an exchange traded fund, it provides diversity in just one security.  With “The War on Coal” raging, that is a prudent way to invest in “King Coal” for the future.

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