On Tuesday we looked at the outlook for natural gas investments and natural gas prices.

The short-term outlook for natural gas investing is not very bright.

Energy Stocks Mixed, Supplies Weigh on Natural Gas Shares:

The Energy Information Administration reported that natural-gas inventories rose by 54 billion cubic feet during the week ended Aug. 21. Analysts surveyed by Platts expected an addition of between 48 and 52 billion cubic feet, while IHS Global Insight projected a build of 52 billion cubic feet.

That is a huge build-up. And it’s not going to get worked off anytime soon.

This is going to cause all sorts of problems for natural gas investments. The natural gas storage areas – old oil wells, abandoned salt mines – are on the verge of being completely full.

Natural gas companies are on the verge of running out of places to put the stuff. The only place left is store it in the hundreds of thousands of pipelines crisscrossing the country.

After that, natural gas companies will be forced to shut down even more rigs. All this will continue to weigh on natural gas prices for months and months into the future.

That’s the bad news. The good news, which is very tough to see in this environment, is the government is stepping in to help cut future supplies.

Natural Gas Franking Fluids under Investigation by the EPA

Of the dominant three fossil fuels America consumes for energy, natural gas is the cleanest; but the method of hydraulic fracturing used to get the natural gas is being brought under review by the EPA.

"Hydraulic fracturing was exempted from the Safe Drinking Water Act in 2005, the EPA assessed the process and concluded it did not pose a threat to drinking water. That study, however, did not involve field research or water testing and has been criticized as incomplete.

In two other cases, Encana provided filtering systems or outright purchased the land from complaining parties.  In this case, Encana is waiting for definitive results from the EPA that pins natural gas activity to the found chemicals in the groundwater wells. 

Fracking is the only way to tap most of the U.S. vast natural gas reserves. The EPA’s involvement will only make producing natural gas more expensive. Which, in turn, will only accelerate the downturn in natural gas production.

This is a big “fracking” mistake. On the bright side, it will also accelerate the true bottom that’s on its way in natural gas.

As contrarian investors, you’ve got to love what’s going on here. The short-term is ugly and on the verge of getting much uglier. Natural gas producers are going to shut down. They’re going to survive. And a few, if this last long enough, will go bankrupt. The long-term however, is looking much, much brighter.

This is exactly the type of opportunity we look for in our free investment newsletter, the Prosperity Dispatch. You have an impaired asset over the short-term. Most everyone is selling out. And we’ll be able to pick up a lot of investment opportunities at truly rock-bottom prices.

There are a lot of reasons for the sharp volatility in the stock market.

There are some that make sense. The recession will separate the leaders from the laggards. More than 73% of the companies in the S&P 500 came in with “better than expected” earnings. Economic news has been, generally, good. All of these are reasonable drivers for the rally in some stocks.

There are others which don’t make any sense. Right now, the leading nonsense market move is AIG (NYSE:AIG).

As someone who’s looking for a decent short-term trade though, my question about AIG at this stage, is it the next Volkswagen?

If you recall, Volkswagen went through one of the greatest short squeezes in history last fall. And for a brief moment, was the largest company in the world by market cap.

Volkswagen Overtakes Exxon as Most Valuable Company:

Volkswagen AG became the world's biggest company by market value after Porsche SE announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.

Volkswagen rose as much as 485.01 euros, or 93 percent, to 1,005.01 euros and was up 55 percent as of 11:10 a.m. in Frankfurt trading. Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at 296 billion euros ($370 billion), more than Exxon Mobil Corp.'s $343 billion market value at yesterday's closing price in New York, according to data compiled by Bloomberg.

Volkswagen soared 500% thanks to the combination of a big short-interest (number of shares sold short) against its shares (leading to a massive short squeeze) and limited free trading float (Porsche announced it was increasing its stake to 75% of Volkswagen’s outstanding shares).

It’s very, very similar to AIG. The U.S. government owns 80% of the company (although 0% of total publicly-traded shares). Also, there’s a very big short-interest. The New York Stock Exchange recently reported the short interest in AIG increased from 15.88% to 34.29%. That’s an increase of 18.41%.

Of course, AIG is also in debt to the U.S. government for $180 billion or so.

Basically, at this point in the AIG saga, any good news is great news. And today it looked like they got a bit of good news.

Talked Up by CEO, AIG Climbs 21%:

AIG Chief Executive Robert Benmosche told Bloomberg News on Thursday that he would sell only parts of the company "at the right time, at the right price," adding that he believes the firm will be able to pay back the federal government.

AIG will be a great short – someday. Right now, the odds of it becoming the next Volkswagen are too great to risk a short now. There is an opportunity for credit call spreads, but for a straight long or short bet will probably have to wait.

Remember, as we say in our free investment newsletter, the Prosperity Dispatch, successful investing is about managing risk and reward. Right now, the numbers just don’t make sense when it comes to AIG.

The White House is finally coming clean…

They’re now projecting a $2 trillion deficit over the next 10 years above the previous $7 trillion estimate. That’s $9 trillion on top of $11.7 trillion deficit.

Naturally, they do it in late August and “leak” the news on a Friday evening.

Now it’s official. The Associated Press reports White House, Congress projects record deficit:

Figures released by the White House foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.

Either way you look at, it’s terrible.

The reason for the difference is:

The CBO projection is based on an assumption that all the tax cuts put into place in the administration of former President George W. Bush will expire on schedule by 2011 as dictated by current law. President Barack Obama's budget baseline, however, hews to his proposal to keep the tax cuts in place for families earning less than $250,000 a year.

Basically, the White House is saying recession or not, tax hikes are coming – get ready.

All I can say is Japanese-style stagflation…here we come.

Successful investors should start getting prepared.

Higher tax rates mean less economic growth and lower revenues. It also means greater deficits and more social spending on all those “safety nets” and the pensions and benefits for government workers who run them.

This is how downward spirals begin. The spirals always end badly. High inflation, high interest rates, and no growth.

That’s why a few days ago I recommended to readers of my premium investment newsletter, Prudent Investing, the time to take action is now. Not because interest rates have bottomed out or inflation is only a few weeks away. The time to move is now because most investors are focused elsewhere and the price of inaction – which will be realized in a few years – will be very, very high.

There are a lot of opinions about where the stock market is headed next. I’ve caught predictions ranging from the S&P 500 stock market index headed to anywhere between 1100 or 800 in the next few weeks. Some of the predictions will be right and some will be very, very wrong.

Q1 Publishing’s investment research has concluded the market will not turn around until everyone stops plowing money into it.

In a world filled with innumerable headlines and an endless supply of differing opinions, it’s easy to forget stock prices are driven by buyers and sellers. If there are more buyers than sellers, stocks go up. If there are more sellers than buyers, stocks go down.

It really is just that simple.

But it is because the basic stock market movements are so volatile and there’s so much noise, it’s easy to forget that very simple principle. And that is why most investors fail to ever make any money at all.

Most investors fail because they get caught buying what’s “hot” and in the news and completely passing over assets which have been forgotten, fallen out of favor, and aren’t attracting much attention.

The New York Times proves this point in Buying High and Selling Low:

$300 billion in new cash to equity funds in the bull market of 2002 to 2007 — with much of it put into funds when the market was near its highs. But in the ensuing bear market, investors pulled out more than $150 billion of assets — with the bulk of the withdrawals after the market melted down in September.

WHAT was the total cost of this poor timing? For stock mutual fund investors, it was more than $42 billion over the 12 months through May, according to a Hulbert Financial Digest study of data provided by Morningstar.

As we like to say in the Prosperity Dispatch, our free investment newsletter, some investors are doomed to fail. It almost seems like they want to buy stocks at highs and sell stocks at lows. Of course, every time they do it, they vow to never do it again. And then a few months later, they’re doing it all over again.

Contrarian investing, buying low and selling high, is one of the toughest things to do in the market. But it is also one of the only few ways to consistently make money in the stock market without having to take huge risks.

The economy is in recovery mode and investors are seeking new investment strategies. There are not many places where you could put your money and sleep peacefully, but healthcare stock is definitely one of the most promising investment areas in today's financial markets.

As a matter of fact, one of the most attractive investment ideas, even a sound advisor investment would offer, is the healthcare stock market. Not only is medical care seen as an indispensable service (you would never refuse to treat your broken leg just because you did not have the money to cover it!), but there are also a number of political and social changes that are leading to new opportunities in healthcare stock investments.

The healthcare stocks have been able to perform better than some of their counterparts in other industries basically because of the speculative nature and potential which sometimes result in huge financial gains. However, one of the primary reasons for healthcare's out-performance is the strong demand from the aging population. Our population is getting skewed towards an older demographic. And the healthcare and medical facilities that serve to the elderly are not only seeing the target market expanding, but are also able to count on the government to help patients make the payments for the same.

If you wish to seek more information and investing lessons on healthcare stock investment, visit q1publishing.com