Some More Coal Commentary

Again, current earnings really are not the focus but we have earnings from (fund holding) Massey Energy (MEE) and (not a fund holding) Arch Coal (ACI) in last 24 hours. For those of you former dry bulk shipping addicts (or deep sea oil driller fans) we have a similar pricing situation here - most of these companies are in long term contracts so the sharp rise in coal prices won't improve performance right away. But as those contracts come off, and new ones are negotiated to replace the old, we will see the benefits of higher prices. And in a leveraged fixed cost business, higher profits drop quite well to the bottom line. We should see this play out very well over next 9-18 months.

Also a bit of analyst concern on the Peabody Energy (BTU) front below

• Shares of most coal producers rose Friday, as better-than-expected earnings from Arch Coal boosted investors' confidence following several disappointing reports from competitors.
• St. Louis-based Arch Coal Inc. said Friday its fourth-quarter profit rose just a penny to 56 cents per share. But the report surprised Wall Street, which had been expecting a profit of 47 cents per share, according to Thomson Financial.
• Forward said investors should take notice of Arch's "respectable" fourth-quarter earnings and 2008 guidance, as well as continued domestic coal price increases.
• But also Friday, Calyon Securities analyst Gordon Howald lowered his 2008 earnings estimates and 12-month target price on Peabody Energy Corp. A day earlier, Peabody warned its first-quarter 2008 earnings would be hurt by the impact of production delays in Australia, and that other charges would hamper its full-year results.
• Howald did maintain his "Buy" rating on the stock, expecting global coal demand will continue to soar this year.

I don't like this area quite as well as fertilizer (but then again I don't like anything as much) but if we want to find recession proof areas, full of pricing power I'd be hard pressed to find much better than the coal/infra/agri consortium. Not that the market cares right now because it is too busy chasing up retailers (who will be flush with shoppers by summer), homebuilders (who will be snapping up homes by this fall), and financials (who are now in the clear thanks to the Fed). Or so the herd says.

At some point reality will seep back in the market - could be next week, or a few weeks though. I have to see how much Kool Aid is left in the punch bowl.

Long Massey Energy, Peabody Energy in fund; no personal position