Trashed by environmentalist, near and far, it is the bad boy of the energy arena. Environmentally hazardous, its producers and consumers are notoriously lax in even attempting to do something to control the pollution they spill into our atmosphere. You know these boys. Their industry usually hides under the proverbial wood pile minting money, only reluctantly revealing themselves in daylight when called to explain yet another mine disaster or ruined river. So why is the demand for coal and those that produce it gaining popularity on Wall Street?

Coal, for those who don't know, is divided into two categories: metallurgical or coking coal, which is used for steel making and thermal or steam coal, which is used for heating and electrical generation. "Met" coal is a high-priced, low-volume product that boasts a high heating value. Here in the U.S., we only consume about 15 million tons of Met and the rest (30-40 million tons) we export to places like China.

Met coal is used in 70 percent of global steel production and accounts for 10 percent of world coal production. It is steel's primary energy source and takes 1,300 pounds of coal (called coke) to produce one ton of steel. The demand for this kind of coal has been rising steadily for some time as country after country in the emerging markets produce more and more steel for building infrastructure and export.

The recent earthquake and tsunami disaster in Japan has opened up an enormous new market for steel and the coal to produce it. Japan has already embarked on the expensive and necessary task of rebuilding. Investors figure Japan is going to need a lot of steel (and therefore coking coal) to accomplish that. Together with the already robust demand from emerging markets, the stocks of these coal producers are in demand.

But that is only one side of the coal market. Thermal or steam coal production dwarfs that of its pricier cousin. Thermal's primary use is in power generation. Worldwide, over 7 billion tons of this stuff is consumed each year. The U.S. uses about a billion tons a year, but because it's heavy and expensive to ship, not much (about 22 million tons) of it is exported.

The fact that over 40 percent of the world's electricity is derived from coal-fired power plants explains why in an era of solar, wind, natural gas and other green alternative energy sources, old King Coal keeps rolling along. It took many years and trillions of dollars to build this coal-based system of power generation. It will take a lot more time, effort and money to convert that system to alternative fuels.

Here in the U.S., 48 percent of our electricity comes from steam coal. Once again, thanks to the ongoing crisis in containing and preventing a radioactive melt down in Japan's Fukushima plant that percentage of use could increase if nuclear power generation is derailed in this country. Worldwide, politicians and voters appear to want at least a moratorium on building new nuclear plants until further studies are done analyzing their safety and other factors. Since we all know how long studies take, this delay can take time and any energy gaps will be filled by additional coal consumption. Investors are quick to realize that this presents further opportunities for additional coal consumption.

Coupled with these developments is China's new status as a net importer of coal beginning in 2009. Most of the 126 metric tons of new imports have come from Australia, but there is some discussion on whether the U.S., which some call the "Saudi Arabia of coal" with 238 billion tons of proven reserves, could figure out a way of exporting our coal cheaply to Asia. That would translate into a big jump in the price of coal stocks.

Does all this new coal demand mean that we will have to settle for coal and its residual pollution as a major source of energy in this country forever?

Not necessarily. It is true, according to the Environmental Protection Agency, that 44 percent of the coal-fired plants in this country currently have no pollution control equipment. There are 400 coal-fired plants spread across 46 states. Their emissions result in about 380,000 tons of black garbage that is spewed into our air each year. Mercury emissions alone around these plants are killing 17,000 people each year and causing 11,000 hear attacks, not to mention the impact on children, whose health is affected most by these poisons.

Even the billions in bribes the industry has paid to Washington for decades to overlook these "minor nuisances" no longer work. Americans have demanded and government has finally agreed to take action. As a result, the industry has been warned that they either retrofit existing facilities with counter measures or close them entirely over the next few years. The EPA's new emission restrictions require a removal of 90 percent of mercury emissions by 2015, along with 80 percent of sulfurous oxides and 52 percent of nitrous oxides by 2018. These new standards will apply to 31 states and the District of Columbia.

It will mean an enormous expense and effort on the part of power generators. Of course, much of the expense will be passed on to consumers in the form of higher monthly energy bills, but even then I suspect that some plants just won't be able to continue to functions. As a result, I expect to see cheaper (and cleaner) natural gas replace coal in the generation of electricity over the next few years. That's good news for all of us and for natural gas producers. Did I mention that I like that sector as well? I guess that will have to wait for a future column.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

The stock market continues to be buffeted by bad news. Energy prices are climbing, war rages in Libya, Japan's nuclear crisis continues to radiate and Portugal's government resigned after failing to push through austerity measures intended to avert a financial crisis. The stock market simply shrugs it off and moves higher.

Pay attention readers. When markets continue to absorb negative news, the tea leaves tell me stocks are going higher. Last week, I wondered if the correction was over. The answer is yes. Some arcane variables I follow are flashing green. For example, market breath (the number of advancing stocks versus decliners) has made a sharp reversal over the last 10 days, which is a good sign. In addition, the percentage of stocks that are now above their 50-day moving average stands at 57 percent. If history is any guide that indicates we will enjoy a strong multimonth rally.

"But how can the very same worries that sank the market as recently as a week ago now no longer matter?" protested a snowbird with a summer house in Becket, who was convinced the world was coming to an end just a few days ago.

Markets tend to discount bad news and price in numerous "what if" scenarios over time. The European banking crisis has been with us for well over a year, so Portugal's problems no longer have the power to ratchet up risk on a worldwide basis. It would take serious financial problems in a really large country such as Italy or Spain to roil world markets down the road.

In the Middle East, the protests in Tunisia began in December of last year. Four months later, investors, who initially feared this unrest might spread to Saudi Arabia, now believe that if it were going to happen, it would have done so by now. Sure, oil will still remain at the $100 to $110 a barrel level until hostilities in Libya subside, but the rest of the market is already focusing on other things.

Finally, Japan, the world's most recent crisis, is far from over, but the inflated fears of a nuclear holocaust that drove the markets lower two weeks ago have been punctured leaving a mess (see this week's column "Who Pays for Japan?") but not one that will sink the world's markets. And in the meantime, U.S. GDP was revised upward for the last quarter of 2010 to 3.1 percent. Interest rates remain at historically low levels, and the economy appears to be gaining strength.

What we have had is a good old correction. Now it is over. Valuations are considerably lower (on average 7 percent) which has reduced the premiums in the equity market to a reasonable level. I believe the markets are poised to move substantially higher from here as I have written several times in the past. It appears the same cast of characters — materials, food, technology, industrials and energy — will lead the markets higher. Invest accordingly.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

It appears that the ongoing disaster in Japan will not end up on the doorstep of the world’s insurance industry. Total damage estimates now range from $200 to $300 billion but insurers will “only” be saddled with 10 to 20 percent of those costs. That still makes it one of the costliest disasters in the history of the insurance sector and there are some nagging details that could cost them even more.

Considering the spate of natural disasters so far this year (New Zealand’s earthquake and Australia’s flooding), not to mention the wave of calamities since 2004, Hurricane Katrina, erupting volcanoes in Iceland, earthquakes in Chile and Haiti – it is a wonder the insurance industry is still around to pay anyone.

The earthquake claims alone (excluding the tsunami and radiation damage) against reinsurers (insurance companies who insure insurance companies) are estimated to run as high as $35 billion. This just may further deplete an industry whose capital is dwindling daily and just about guarantees a first quarter loss for most companies in that industry with exposure to Japan.

Big reinsurance companies are starting to total up their exposure. Swiss Re says they face $1.2 billion in claims, while AIG allows for at least $700 million. Munich Re and Hannover Re, two large European insurers, aren’t ready to guess and the French reinsurer, Scor SE, believes its losses will total no more than $262 million. Warren Buffet’s Berkshire Hathaway Inc. also has some exposure through its reinsurance companies, but has not yet released estimates.

One reason the big insurers have escaped the majority of catastrophe claims is the insular nature of the Japanese. Unlike most countries, the Japanese prefer to insure their own property and businesses against catastrophes and other risks. Unfortunately, analysts believe that Japan historically has tended to under-insure most of its productive assets such as auto factories, semiconductor plants, consumer manufacturers, farm land and everything in between.

Nuclear risks like the present fallout from the Fukushima plant tend not to be insured by private companies. The quasi-government-owned Japan Earthquake Reinsurance Company will most likely bear the brunt of those losses (although this government agency might only insure half of the losses or less).

Actually, few if any insurance companies worldwide will insure against a nuclear accident, which makes the ongoing concern over the Indian Point nuclear unit in New York that much more serious. The reactor sits atop a fault line, that if worst came to worst could conceivably expose radiation to 6 percent of the nation’s population and a comparable amount of this nation’s assets.

Of far more serious concern to the insurance industry are supply chain disruptions that are occurring, and will continue to occur thanks to the devastation in Japan. The prospects of long-term supply disruptions are highly probable as Northern Japan’s factories have been shut down by limited power supply and are failing to produce and ship parts and products that are essential to high tech, electronic, auto and other industries worldwide. By some estimates, Korea, for example, depends on Japanese parts for 23 percent of its finished products.

On Thursday, for example, Toyota told its plants in the U.S., Canada and Mexico to prepare for a possible shutdown due to the lack of parts availability. General Motors has already stopped production of a truck plant in Louisiana and a related engine plant in New York.

Business interruption coverage is a routine insurance product which insures a business against just such an interruption. Just about every business worth its salt has such a policy or policies. While a business’s supply chain  generally has a few weeks of safety stock supplies, there isn’t a lot of time for companies to find new suppliers, shift production or try to make spot purchases before they run out of parts. Costs skyrocket as several companies in the same line compete for scarce parts.

Possible shortages of Japanese-made components can significantly impact profits across the globe as businesses fail to deliver products to market on time. You can be sure that some insurance company somewhere will be on the hook to make up for that cost of lost production. It is this supply chain problem that has the managements of insurance companies staying awake at night.

The insurance industry is keeping mum about this potential problem. I can understand their reticence, but until we get all the facts I would not go bottom fishing in that sector.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

In last week's market column, I warned readers of an impending decline of as much as 5 percent in the stock markets. I realize that not everyone receives both my columns each week. The important thing to know is that 4 percent of that drop has occurred but we may still have a re-test of the lows. 

Over the last few days I have been making a lot of what I call "hand holding" calls. These conversations are meant to summarize the events in both Japan and the Middle East, explain how we are dealing with this crisis, and answer any questions people may have. I soon discovered that my clients (and people in general) have been subjected to a lot of misconceptions, misinformation and still have many unanswered questions surrounding these crises. So let's try to set the record straight.

"What's going to happen in the Middle East?" asked a local business owner from Pittsfield.

By now you know that the United Nations declared a no-fly zone over Libya on Friday. In response, Libya's foreign minister quickly declared a cease fire, but as of this writing, battles still rage within the country. On the news, both oil and precious metals declined from overnight highs. All three of those commodities have gyrated wildly all week in response to global events.

At the crux of this controversy, investors fear that while Libya is a small player in the oil markets, unrest in the region, whether in Gaddafi land, Bahrain or elsewhere, could spread to Saudi Arabia. Unrest within the Kingdom would jeopardize a much larger piece of the world's energy pie and could cripple global economic growth.

The ruler of Saudi Arabia, King Abdullah, has decided to short circuit any political unrest in his kingdom by buying off the people who count. Friday he announced a multibillion dollar boost in welfare benefits, bonuses for public-sector workers (including the army) and a massive program of new housing. This follows last month's $37 billion giveaway. Some of the money will also be spent on hiring, ahem, 60,000 new "security guards" at the interior ministry just in case this bribe does not appease all of the populace.

My belief is that tensions in the Middle East may continue, but their power to impact world equity markets is diminishing and as they do, the price of oil will slowly sink back to my target of $80-$90 a barrel, which seems a reasonable price for oil, given world economic growth.

Japan's crisis around the Fukushima nuclear plant, on the other hand, is still a wild card. No one knows what will happen in the days ahead. I maintain that, if the worst should occur, it will not have a substantial impact on the United States. The uncertainty, however, will keep world markets volatile for a bit longer.

If I measure this pullback from top to bottom, we have had a 7.01 percent decline. Over the last few days we have been experiencing a relief rally that has reclaimed about 3 percent of that fall. I am not certain that we have seen the lows yet on the S&P 500 Index. We could still test the 1,225-1,235 level if there were to be a nuclear meltdown at Fukushima or an air war with Libyan forces.

None of that changes my strategy and hopefully yours. This is a pull back to be bought. Don't try to catch the very bottom, simply add to your positions on down days. You should have been doing just that this week. I know I have.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Like hucksters selling hot dogs in the ball park, the media is having a field day with the Japanese nuclear crisis. Americans, fearing for their safety, immediately bought out the nation's supply of potassium iodide tablets. Investors are panicking worldwide, dumping trillions in equities, commodity and currency investments indiscriminately. There are so many rumors, falsehoods and downright lies flying around the airways that I am astounded we continue to tune into this drivel. I believe we all need to calm down and turn our TVs off.

As a former Fulbright Fellow to Japan, who has lived and spent a great deal of time in that wonderful country, I pray for a successful end to this nuclear crisis and a speedy economic and social recovery for the Japanese people, as I'm sure we all do. Events around the Fukushima reactor in Japan are precarious as I write this. Yet the knee-jerk response of the world's governments, citizens and investors, as illustrated by the volatility in the financial markets, once again proves my point — the markets are not efficient, never will be and there, my reader, provides the opportunity for you to prosper.

The Efficient Market Hypothesis (EMH), a theory concocted by academicians and followed stringently by those on Wall Street, maintains the current prices of securities reflect all information known about the security. They argue that investors cannot expect to outperform the overall market consistently on a risk-adjusted basis. Day-to-day changes in the market prices of securities cannot be predicted with any reliable degree of accuracy. Therefore any trading, security analysis or buy and sell strategies are of no value.

If these same market participants took the time to analyze the information coming out of Japan this week, I can't see how even a countrywide nuclear disaster in Japan will impact stocks in the U.S. or Europe or numerous other countries throughout the world.

Assurances that the fallout from these reactors, in a worst-case scenario would not create a Chernobyl-type calamity, have fallen on deaf ears. Dire predictions that this catastrophe will set back economic growth in Japan for years do not square with history, nor do forecasts that Japan's problems will put an end to our own recovery.

Most studies of similar disasters throughout the last few decades indicate Japan may suffer a quarter or two of slower economic growth followed by a pickup in GDP as reconstruction spending takes hold. In addition, the disaster occurred in Sendai, in northern Japan, which accounts for less than 2 percent of Japanese output.

The risk of nuclear fallout floating to this side of the Pacific has such a low probability that buying up iodine tablets on eBay for over $200 (more than 10 times the usual price) may make sense if you lived 25 miles from the Fukushima reactors, but here in the U.S. it makes no sense.

It also makes little sense to talk of abandoning nuclear energy as an alternative fuel source. I find nothing wrong with checking the 104 reactors in this country for possible weaknesses. I think that should be done on a regular basis anyway. America has not built a new nuclear energy unit since the Three Mile Island disaster. It would be a shame to once again abandon this strategic energy source because of events in Japan.

So what are my recommendations in dealing with this debacle?

This sell-off has created so many buying opportunities in so many sectors that this should be called the great global giveaway in equities. In my opinion we are very close to a bottom. In last weekend's column I wrote that I expected no more than a 5 percent decline in the S&P 500. We have already dropped 3 percent of that total. Some obvious places where the selling appears to be overdone are the nuclear energy sector and, of course, Japan. For long term investors, I wish you happy hunting.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.