Two weeks ago, Michael Coscia, founder of high-frequency trading firm Panther Energy Trading, was indicted for spoofing.
Spoofing is a new form of manipulation in which computer software is used to funnel money away from unsuspecting investors.
It goes like this…
Coscia would place small buy or sell orders for a future contract, and then one of his computer programs would place exorbitantly high orders against that trade.
Enticed by the large orders, regular investors would jump in too, but once the price jumped enough to trigger his smaller order, he would cancel the large one.
Then the program would complete the inverse so Coscia could exit with a hefty gain.
According to the indictment, the firm raked in profits of around $1.6 million. If he is found guilty, Coscia could face over five years in prison.
Of course, I doubt investors duped by his spoofing scam will ever see that money again.
At the risk of sounding paranoid, I would suggest that investors stick to safer bets in the future.
High Yield, Low Risk
And what’s a safer bet than a sure thing?
As you’ve probably noticed over the last couple of months, my focus lands squarely on long-term, high-reward value that investors can safely rely upon for years.
I don’t fuss with futures contracts, options, calls, or day trading — I just stick to my guns and buy valuable companies with stellar track records and competitive advantages in their industries.
And my focus recently has been on high yield in the energy sector, which is why MLPs and ETFs have been my go-to investments this year.
While I realize not all futures and options are manipulated by people like Coscia, I also don’t want to risk my hard-earned money to find out which investments are the real deal and which ones are spoofs.
Instead, I’ve been steadily building my position in stocks that have been deemed “too boring” by speculators and market manipulators alike.
What these guys don’t know — or choose to ignore — is that these “sure thing” bets are how investors make real money and get rich with ease.
Two Trends Converge
In the energy industry, high-yield investments are set to take over thanks to two trends emerging amid North America’s serious infrastructure problem…
Alberta, Canada holds the world’s greatest concentration of in-place reserves at 1.7 trillion barrels, and as the technologies to recover it go mainstream, Canada’s production has grown.
Meanwhile, the United States produces nearly 9 million barrels of crude per day, and the numbers continue to climb here as well.
However, Canadian oil producers lack the pipelines to transfer this landlocked oil to seaports on the Atlantic and Pacific coasts, and American companies aren’t allowed to ship their unrefined oil products… yet.
Over the next year or so, though, these bumps will be smoothed out.
Canada has two major pipelines in the works. One is called the Energy East, and it will cover ground from Hardisty, Alberta to Saint John, New Brunswick on the Atlantic.
The other is the Northern Gateway, which will run from the oil sands to the Pacific Coast port of Kitimat.
In the U.S., the Energy Department has hinted that the crude oil export ban will be lifted in the near future… possibly after the mid-term elections.
Now that it’s allowed the export of condensate to South Korea and sped up permit processes for LNG exports, the next logical step has to be crude oil exports.
And the convergence of these two trends in oil transportation is going to make high-yield energy investors very successful.
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Pipeline and oil tanker companies are some of the best high-reward, low-risk ways to play energy.
Their business models rely on consistent payouts from contracts that last a long time. Plus, most of these companies have very little CAPEX.
Once a pipeline or supertanker is built and the debt from construction paid off, everything else is gravy for the companies — and in some cases, the shareholders, too. The trick is knowing which companies to buy.
An MLP ETF could be the safest way to capitalize on tankers and pipelines over the next few years, as it will offer decent yield from several different companies all in one package.
Right now, you can’t go wrong with the Alerian MLP ETF (NYSE: AMLP).
Alerian’s holdings comprise a wide array of North American oil and gas MLPs, including one of the two companies allowed to export condensate and the future operator of the Northern Gateway Pipeline.
The ETF is up 2.75% on the year and has room to run — especially if you buy now amid low oil price fears.
I suggest building a position with a dollar-cost averaging strategy to avoid any (although unlikely) manipulation or spoofing.
Good Investing,
Alex Martinelli
With an eye squarely focused on the long-term, Alex Martinelli takes the art of income investing to a higher level within the energy sector. His research has helped hundreds of thousands of individual investors identify well established companies that have a long history of paying out dividends to their shareholders. For more info on Alex, check out his editor’s page.
