Tim Iacono

This report at Reuters called attention to the record size of the Fed’s balance sheet (though, these days, it reaches a new record every week) and it prompted the update of the chart below, a simplified view of how the central bank is “healing” financial markets.

Of course, some would disagree with the “healing” characterization, viewing the Fed’s actions as irresponsible and reckless money printing that, someday, will show up in the history books as an example of what not to do after a fiat money system that will never be sufficiently regulated tries to destroy itself (i.e., it only delays the inevitable).

The Fed’s balance sheet is careening towards $3 trillion and, after the latest round of money printing ends next month, the plan is to keep it parked right there and wait to see what happens, much in the same way that a little boy would randomly mix things together from his chemistry set and then sit back and wait to see what happens.

The “Golden Trading Vehicle” that has nearly 100% accuracy CLICK HERE

• If you have a full-time job and don’t have time to trade all day.
• If you don’t want to sit in front of your screen 24 hours a day, 5 days a week trading, and your profits usually end up suffering.
• If you don’t have enough stress in your life, you now have to deal with the “fear/greed cycle”… and constantly worrying about pulling the trigger on trades… cutting your losses and all the psychological stress.

By David Galland, Casey Research

While there are many reasons that gold and silver are going to keep moving higher as the fiat currencies trend lower, at our recent Casey Research Summit in Boca Raton, faculty member Mike Maloney pointed out a fact that, while obvious in hindsight, I had never heard mentioned previously.

Namely that during the last major precious metals bull market in the 1970s, only about 10% of the world could own gold – either due to legal restrictions or a lack of liquid capital.

Today, few countries prohibit gold ownership, and a far higher percentage of the world’s population has transitioned out of poverty.

China provides the most germane example, having legalized gold and silver ownership for private citizens in 2004, and through the explosive growth in national GDP that has caused Chinese gold purchases to skyrocket.

Confirming the point, the following is an excerpt from a recent Wall Street Journal article:

Chinese investors are snapping up gold bars and coins, buying more than ever before in the first quarter of 2011 and overtaking Indian buyers as the world’s biggest purchasers of the metal.

A growing middle-class in China is raising the appetite for gold there.

China’s investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India’s modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India’s 23%.

The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country’s soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months.

“I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue,” said Eily Ong, an investment research manager at the gold council.

Notoriously active savers, stashing away on the order of 50% of their income, the Chinese are increasingly opting for gold over the renminbi to stash their wealth.

For those wondering just how big a development this is, consider that in 2007, just before investing in gold became “the thing to do,” gold demand in India was 61% of the world’s total while China’s gold demand was only 9%.

In other words, India is no longer the only elephant in the gold vault. And they are not alone – investors around the world are now able, and willing, to buy gold as a way of protecting their wealth from the inevitable decline of the fading fiat currencies.

I still don’t think we are out of the woods on a commodities correction, but there are so many black swans floating overhead that literally anything can happen, at any time. Thus buying in tranches on pullbacks over the next four to six months still makes a lot of sense.

But in the longer term, gold has almost nowhere to go but up.

[The current edition of BIG GOLD tells you how to take full advantage of corrections in gold and silver – and how to get the most bang for your buck. Try it now for only $79 per year… for 3 months with 100% money-back guarantee.]

by Tyler Durden

Today’s chart of the week comes from Bloomberg’s Senior Economist, Joseph Brusuelas, who correlates initial claims (inverted axis) and GDP (Y/Y% not annualized). Alas for Tim Geithner and anyone who read his “Welcome to the Recovery” Op-Ed from August 2010 clearly written under the influence of hallucinogenic Kool-Aid, it appears that the economy is about to grind to grind to a halt. The chart needs no explanation.

SUBSCRIBE AND BECOME A TECHNICAL TRADER TODAY–This is a COMPLETE, one-of-a-kind service!

By Chris Wood, Casey Extraordinary Technology

A new war is being waged – a war that is not fought with guns, missiles, or human soldiers, but with code in cyberspace, using computers and the Internet. It’s a war on all fronts – by governments against governments, governments against corporations, organized crime and insiders against both, and even individuals against other individuals (which is more often dubbed cybercrime, but that’s not a necessary distinction for our purposes).

The point is that this war is pervasive, and we are all vulnerable to attack.

About three years ago, Heartland Payment Systems discovered that hackers had penetrated their systems for a period “longer than weeks” in late 2008, and were eavesdropping on the majority of transactions the company processed. In all, more than 100 million credit cards were compromised, resulting in the largest known case of credit card fraud in history. So far (through December 31, 2010), the company has had to pay out about $115 million in settlements of claims with banks and VISA, along with more than $30 million in legal fees.

More recently we’ve had the China/Google fiasco, a situation that culminated in Google all but accusing the Chinese government of at least abetting a coordinated and sophisticated attack aimed at cracking the email accounts of known political dissidents within the country. Google was forced to admit that the attackers were successful to an extent, in that they managed to steal the source code for the company’s password system that protects all accounts. But apparently no accounts were compromised in the attack, according to Google.

The weapons being used to fight this war are becoming more sophisticated and harder to protect against, while at the same time often becoming easier for foes with little technical experience to wield.

In 2005, a Russian hacker group known as UpLevel developed Zeus, a point-and-click program for creating and controlling a network of compromised computer systems, also known as a botnet. By 2010, the most recent version of the basic Zeus software could be downloaded for free and required almost no technical skill to operate. It’s now become one of the most popular botnet platforms for spammers and criminals who deal in stolen personal information.

UpLevel consisted of just four or five developers who started working on Zeus in 2005. The next year they released the first version of the program, a basic Trojan designed to hide on an infected system and steal information. Soon thereafter, the team came out with a more modular version, which allowed other hackers to add functionality by creating plug-ins. Now the Zeus platform allows users to easily build custom malware to infect target systems and manage a vast network of zombie machines, i.e., the botnet. In fact, a whole cottage industry has cropped up around creating add-ons for Zeus, satisfying the needs of the most novice cybercriminal up to the most sophisticated organized-crime users.

(Note: “Botnet” is short for robotic network and the general term used to denote a collection of compromised computers that are running under a common command-and-control (C&C) infrastructure. Thus one person can have a large number of “zombie” computers at his fingertips. How many? Well, the Mariposa botnet, busted by Spanish authorities in March 2010, was found to have nearly 13 million computers under control.)

And just as Trojans, like Zeus, are evolving, so, too, are the botnets themselves.

Conventional botnets are controlled by a few central computers. Take down those machines and you’ll disable the whole network. But a recent article by Kurt Kleiner in Technology Review (published by MIT) warns that this weakness does not exist in botnets that use peer-to-peer communications protocols and pass messages from machine to machine instead of coming from a central command.

Using these peer-to-peer communications protocols, Stephan Eidenbenz and his team at Los Alamos National Laboratory designed and simulated a botnet that would be much harder to kill than the traditional centrally controlled variety.

According to the aforementioned article by Kleiner:

Their hypothetical botnet would randomly configure itself into a hierarchy, with peers accepting commands only from computers higher up in the hierarchy. Any computer taken over by an outsider would thus be less likely to be able to disrupt the network. The botnet would reconfigure its hierarchy every day, so outsiders would have scant time to track down the highest-level computers that could do the most damage.

The technique, together with strong encryption, would make such botnets hard to analyze and attack.

Experts expect that these stronger peer-to-peer botnets are only a matter of time. “Once someone writes ways to strengthen a botnet’s security into easy-to-implement code, this type of botnet will quickly spread,” says Cliff Zou, network security researcher at the University of Central Florida.

Now, the point of all this is not to scare you into throwing your computer out of the window – it’s to highlight the fact that as the weapons in this cyber-war evolve, so, too, must defenses against them. And that’s big business.

As Intel CEO Paul Otellini recently said, “We have concluded that security has now become the third pillar of computing, joining energy-efficient performance and Internet connectivity in importance.”

I have to agree with Mr. Otellini. And investors are already capitalizing on the huge growth that will come in this area over the next few years. Though estimates of its size vary broadly because of differing definitions, even the most conservative valuations peg pure security hardware and software expenditures at well above $15 billion annually. And steady, double-digit growth is projected for years to come.

As just one example of the gains that can be had by investing in this space, Casey Extraordinary Technology subscribers were rewarded with a one-week return of nearly 50% last August when we recommended buying ArcSight Inc. (a company that develops monitoring software to seek out nefarious code or malicious insiders that have breached the firewall). Just seven days after our recommendation, news of a potential buyout of the company by HP at a 50% premium caused the shares to pop and we exited with a huge gain.

Another example: One of our core portfolio holdings that operates in the network security space is up nearly 200% since we bought in just one year ago.

Obviously, not all the computer and network security firms out there are gems, but given all the money that’s necessarily going to be pumped into these industries in the coming years, it might behoove you as an investor to investigate the options.

[There are still myths that cause many investors to shy away from the tech industry – even though it is one of the fastest-growing sectors in the U.S. economy. Don’t make the same mistake; read here about the myth-busting truth of prudent tech investing today… and how it can substantially boost your portfolio.]

In doing some brief reading around the blogosphere I have noticed that most pundits are writing off gold, silver, and oil entirely. In fact, I have even read that the selloff is just beginning in precious metals and energy. In addition to the bearish traders, it seems as though even more traders are expecting some period of consolidation. Lower prices and a period of consolidation make sense, but what I am more interested in at this stage is a clear setup that offers solid risk / reward.

In basic terms, I try to identify key price levels and then allow price action to generate signals about Mr. Market’s preferred direction, regardless of the underlying asset. Trading is an undertaking where operating with defined risk is paramount to both survival and success. Leveraging probability and focusing on trade/money management represent the other side of success. With that said, I am currently sitting in cash waiting for setups to emerge. The following analysis should be viewed as merely a context of price action and not a catalyst(s). Technical analysis is only one view of the marketplace and often times it proves to be contradictory to Mr. Market’s plans.

Currently I have differing views on various asset classes as it relates to risk and sensitivity to the U.S. Dollar. As of mid-morning on Monday, price action in the S&P 500 and oil was ugly as European debt issues still loomed large over global financial markets. The debt issues in the Eurozone were pushing prices of the U.S. Dollar Index higher while the Euro tested critical support. So far Tuesday we are seeing higher prices in risk assets, although the S&P 500 is lagging behind gold, silver, and oil.

For readers who have been reading my work in the recent past, I have not made any predictions but instead typically offered both sides of the price action and allowed individual investors and traders to come to their own conclusions. I generally do not trust financial writers or pundits who are always biased about price direction because often times I feel like they are pumping their book or hoping to get viewers or readers to follow them into their recommended positions.

At this time I do not have an open position in any of the underlying assets discussed in this article. No equity, futures, or option positions are open at this time and members of my service at OptionsTradingSignals.com have come to realize that when the market gets choppy, I like to remain in cash and wait for solid setups. Right now the S&P 500 looks like it could go either direction, but the day/week is far from over and Tuesday’s closing bell has not been heard. The following analysis is my current view of the marketplace.

S&P 500
The S&P 500 (SPX) is trading slightly higher today (Tuesday) as it retraces the big move lower we saw on Monday. Currently the SPX is trading right at a key support level. Solid volume accompanied lower prices yesterday as represented by the S&P 500 E-Mini futures contracts as well as the SPY ETF. I am going to be watching price action closely the next few days to see how the S&P 500 index handles the current support level. Right now the SPX looks poised to break down, but a bounce later today could push the index back above the key support level and an extension higher could be seen making a potential reversal more likely. The close on Tuesday and Wednesday should provide traders with clues about where the S&P 500 is headed. The daily chart of SPX shown below illustrates the key support levels in the short term:

U.S. Dollar Index
The U.S. Dollar Index pushed above recent highs on Monday but is experiencing selling pressure today. The selling pressure is being largely dismissed by the S&P 500 but other risk assets such as gold, silver, and oil are benefitting. Members of my service at OptionsTradingSignals.com understand that I have been focusing on the U.S. Dollar for weeks. Right now risk assets are trading primarily in the opposite direction of the Dollar. Obviously there are exceptions to the rule, but a strong Dollar has meant lower equity and oil prices specifically. Gold and silver have been holding up well as fearful investors are using gold and silver as safe havens against the potential for a European debt default or a Euro currency crisis.

The U.S. Dollar may have put in a key pivot low on the daily chart back in the early part of May. In addition, the key 200 period moving average is overhead and the U.S. Dollar may be poised to test the key price level in the future. The daily chart of the U.S. Dollar can be seen below:

While the Dollar could roll over and probe lower, the fact that it has put in a higher low and broken out above recent highs is bullish. Similar to the S&P 500, the next few daily closes are going to be critical as it relates to risk assets. I will be monitoring the U.S. Dollar’s price action quite closely as a clue where equities may be headed.

Gold
Gold futures closed the day above the 20 period moving average on Monday and are extending gains today. Gold did not sell off to the same degree as silver and so far the 50 period moving average on the daily chart has offered key support. I would not be surprised to see the rally in gold continue in coming days and weeks as the situation in Europe will likely be in the forefront of headlines in the near term.

It is possible for gold futures to push higher and possibly attack and test the recent highs. If we do get a strong extension higher in gold I would expect a blow-off top and a subsequent selloff that is quite deliberate and nasty. I think in the short term we could see gold put in new highs and possibly climb above the key $1,600 an ounce price level. However, if we do get a strong extension higher I will expect to see sellers beginning to step in if price gets above the $1,600 price level. The daily chart of gold futures is shown below:

Light Sweet Crude Oil
Analysts from Goldman Sachs are declaring that oil prices will likely increase in the near to intermediate term. Price action so far on Tuesday has just about totally negated the nasty red candle from Monday. Oil continues to consolidate near the lows and will eventually either breakdown to new lows and possibly test the 200 period moving average or we will see an extension higher to the $103 – $105 / barrel price level. The daily chart of oil futures is shown below:

In the longer term, I remain extremely bullish of energy as the fundamentals indicate that oil demand will likely continue to rise while supply levels remain flat or begin to increase. Oil prices are likely to go much higher than what most analysts are expecting. For now, I’m going to be watching the key support level illustrated above. If oil prices continue to consolidate at these levels a breakout is nearly inevitable. The question remains which way will oil break?

Silver Futures
Silver futures are rallying hard on the weak price action in the U.S. Dollar. Silver is currently trading +3.50% intraday and is on target to test the .236 Fibonacci Retracement level. Silver looks relatively strong here and if prices continue to work higher I would expect to see prices of silver reach as high as $41.25 before sellers take back control. The daily chart of silver futures is shown below:

The consolidation that I am seeing in silver reminds me that the underlying demand for silver is still there. If the Dollar continues to weaken or more money pours into silver as a safety hedge away from the Euro currency, we could see silver put on a strong run higher before ultimately selling off again. Silver futures trade with increased volatility during specific periods of time. I am going to continue to monitor the price action in the U.S. Dollar, Gold, and silver.

Conclusion
I continue to watch price action waiting for a solid setup to form before getting involved. I realize that precious metals and oil are higher today, but both are the products of a weaker U.S. Dollar. It remains to be seen whether we continue to see stocks selloff. In terms of the price action in the S&P 500, I continue to wait to see if we get a clear cut setup. What I do know is taking an anticipatory trade on the S&P 500 is a great way to lose money. I hate losing money, so I will remain in cash in the short run and let price action dictate my next trade.

In my opinion we are sitting at a key inflection point that is going to tell us a great deal about the tenor of the marketplace. When we get a failed break or a key breakout it should provide traders with clues about Mr. Market’s intentions. Until then we will have to sit back and wait patiently for prudent setups to transpire.

If you would like to be informed several times per week on SP 500, Volatility Index, Gold, and Silver intermediate direction and option trade alerts… take a look athttp://www.optionstradingsignals.com/specials/index.php today for a 24 hour 66% off coupon, and/or sign up for our occasional free updates.

• You get to try the system Mike used to turn $10,000 into $100,000 in just over a month…. and let him pull out $682,000 in profits after commissions in one year.
• You get to try the system he used to average $56,857 a MONTH in profits in 2010 from a single initial $50,000 deposit. That’s more than most doctors or lawyers make in a year.
• You get to try the system that made over $100,000 in a single day on May 6, when the now-infamous “flash crash” hit, an event that sent most traders into a financial tailspin. When you’re front-running banks, volatility is your best friend.

By: Evan Lazarus of T3Live

Baidu.com, Inc. (BIDU) is showing signs of wanting much lower prices as we are seeing our key moving averages turn down on the daily and the stock is seeing rejection at those levels. From our initial suggestion to short this stock in the low $140’s, we are now seeing signs that BIDU will achieve target #1 (low 120’s) and potentially #2 (110 area).

The SPDR Gold Trust ETF (GLD) saw heavy selling along with the entire commodity complex two weeks ago, but we have seen very little follow through from that point. I still believe GLD can go lower but stops need to be kept very tight here as we don’t want our previous pivot high in the mid $148 area get violated. Ideally, this is the spot a trader wants to look to be in a tier 1 initial position with tight stops. Heavy volume selling with light volume retracement is never what you want to see if you are looking long.

FREE Weekly Gold Updates HERE

By Marin Katusa, Casey Research

Blackstone Group LP (BX), the world’s largest private equity firm, is set to invest $1 billion in unconventional oil and gas projects in North America through a joint venture with Alta Resources, which has cemented a spotlight on fracking.

A U.S. Senate committee has been conducting a hearing on the safety of hydraulic fracturing, as it is formally known. The province of Quebec, the state of New York, and the entirety of France have recently banned the technique. And two new studies claim that fracking-derived shale gas is actually worse for the environment than mining and burning coal. With so many claims flying around about this unconventional practice, let’s get a closer look at the facts.

Fracking is a drilling technique that involves pumping large volumes of water, sand and chemicals into deep shale deposits to fracture the rock and free the oil or gas. Drillers seeking to pull more oil and gas from hard rock deposits have been fracking since the 1950s, but in the last decade advancements in horizontal drilling techniques have taken fracking to a new level.

Fracking has enabled us to extract gas from shale deposits, which are often more than a mile underground. The gas in these deposits used to be inaccessible, but now that it can be extracted, and as a result, shale gas has transformed the North American natural gas landscape. In the chart below, the increase in Lower 48 onshore production over the last 10 years stems primarily from shale gas discoveries.

Shale gas deposits now provide 25% of America’s natural gas and are expected to provide 45% by 2035. In 2010, the nation produced 4.87 trillion cubic feet of shale gas, a 57% increase from in 2009. Shale gas discoveries accounted for 90% of the increase in America’s domestic gas reserves in 2009 – a year when gas reserves grew by 11% even though prices fell by a third – and shale gas now represents 21% of the nation’s total gas reserves.

The dramatic shift to shale gas has three drivers. First, horizontal drilling advanced to a level where drillers became able to frack horizontally. Fracking has been used to extend the lives of vertical wells since 1949, but vertical fracturing cannot retrieve shale gas at economic levels. Horizontal fracking can.

Second, the world’s easy-to-reach, conventional gas fields are starting to run dry. That precipitated an increase in the price of natural gas. When a commodity is worth more, companies become willing to spend more finding it, and thus was born today’s frantic fracking campaign.

Third, the United States hates that it is reliant on OPEC oil. When fracking revealed a wealth of domestic natural gas, that natural gas quickly became the “bridge fuel” in the nation’s energy plan, a cleaner-burning fuel than oil or coal that the country can use to wean itself off foreign oil as it transitions to renewable energy sources. Natural gas exploration has almost been cast as an act of patriotism.

It has also found major support from the federal government. President Obama has promoted natural gas as part of America’s clean energy future, but the real support for fracking came from President Bush. In 2005, the Bush administration drafted and passed the Energy Policy Act, a wide-ranging energy bill crafted by Vice President Dick Cheney. (It is relevant to note that Dick Cheney ran Halliburton, the company that pioneered fracking and is highly active in U.S. natural gas exploration, before joining politics.)

The Energy Policy Act explicitly exempted fracking from the requirements of the Safe Drinking Water Act, the Clean Air Act, and the Clean Water Act. The Halliburton Loophole, as it has become known, enables gas companies to pump millions of gallons of fracking fluid into old wells or to leave the fluid evaporating in open pools, without having to identify the chemicals in the fluid. Those chemicals include benzene, toluene, boric acid, xylene, diesel-range organics, methanol, formaldehyde, and ammonium bisulfite.

It is this fracking fluid that causes the most concern. It takes up to 8 million gallons of water to frack a well, and a well may be fracked up to 18 times. With each round, about half of the fracking fluid returns to the surface along with the gas, via the collection pipes. The gas is piped to compressor stations, where it is purified and compressed for transport. The returned fracking fluid, now called wastewater, is either trucked to water treatment plants that may or may not be designed to handle fracking chemicals, reinjected into old wells, or stored in large, tarp-lined pits, where it is allowed to evaporate.

It is no great surprise that the rapid growth in fracking has been matched by an equally rapid growth in opposition. The wells themselves are eyesores for some; to build the roads and drill pads, hundreds of thousands of acres of land have been disrupted. However, the big issue is water contamination. As use of the technique has spread, it has been followed by thousands of incidents of water contaminated by metals and volatile organic compounds that have led to health problems for people, livestock and wildlife.

The natural gas industry claims that the one million currently producing, hydraulically fractured wells in the United States were drilled without causing a single confirmed case of groundwater contamination. That is not true. In Pennsylvania, the Department of Environmental Protection acknowledged a contamination of the aquifer that fills household wells in a rural area of Dimrock after more than 60 wells were drilled in a 9-square-mile area.

The fracking operations turned the water brown and imbued it with dangerously high levels of methane, iron and aluminum. Fracking fluids leaked into streams, turning them garish colors and killing fish. One woman’s water well blew up. A family was evacuated from their house because of dangerous methane levels.

Shale formations are typically 5,000 to 8,000 feet deep, way below groundwater aquifers that usually sit just 1,000 feet below surface. As such, it is not likely that the frac gas and fluids travel all the way up to the aquifers through fractures. Contamination more likely occurs through poor cement well casings that allow fracking fluids and methane to escape all the way up the pipe, including at groundwater levels.

In addition, since the Halliburton Loophole exempts fracking from abiding by most environmental regulations, the above-ground handling of return wastewater and the airborne pollution produced through processing add significant risks to the fracking process. For example, Fort Worth, Texas, sits atop a very productive shale formation. Chemical emissions from natural gas processing facilities in and around Forth Worth now match the city’s total emissions from cars and trucks.

Fracking still enjoys wide-ranging support, for good reasons. The lease fees that drilling companies pay to landowners are enough to turn many citizens into supporters. The price to lease an acre of Marcellus Shale, the huge shale play that stretches from West Virginia to New York, continues to climb. Twenty years ago, it was just $25; now it averages $5,000. The industry creates thousands of job and pumps lots of money into state coffers. And it provides natural gas, the clean energy of our near-term future. Right? Well, maybe.

The part that may not be right is the “cleanliness” of natural gas. Two new studies out of Cornell University are poking holes in natural gas’ clean-and-green reputation, suggesting that the rush to develop America’s unconventional gas resources will likely increase the nation’s carbon emissions rather than decrease them.

Natural gas is considered clean because, on combustion, it emits roughly half the carbon dioxide of coal and about 30% that of oil. The problem, according to lead author Robert Howarth, is that combustion is only one part of the natural gas life cycle; during other parts of the cycle, a lot of methane is lost.

The study suggests that  between 3.6% and 7.9% of the methane in natural gas is lost from the time a well is plumbed to when the gas is used. On top of that, a recent study from the Goddard Institute for Space Studies at NASA suggests an interaction between methane and certain aerosol particles significantly amplifies methane’s already potent greenhouse gas effects. In addition, thousands of trucks are driving every minute of every day to bring fracking fluid to drills and to remove wastewater. When all is factored in, Howarth and his colleagues conclude the greenhouse gas footprint of shale gas is likely 20% greater than coal per unit energy, and may be as much as twice as high.

There are many caveats in the study. The data Howarth used was thin, by his own admission, in large part because the industry discloses so little. And much of the methane now leaking out of shale gas operations should be relatively easy to seal in. But if nothing else, the study should give lawmakers reason to pause before continuing their wide embrace of all sources of natural gas.

Along those lines, many people oppose the overall concept of a bridge fuel. The question is: how long and wide should the bridge be? And if Howarth is right and shale-derived gas is worse for the environment than coal and oil, should shale gas be part of the bridge?

These are the questions that governments around the world are wrestling with. In the U.S., a Senate Environment and Public Works Committee is currently hearing testimony in an effort to assess the safety of hydraulic fracturing. The Environmental Protection Agency (EPA) is also studying fracking, under orders from Congress. The EPA study is a comprehensive look at whether fracking taints water supplies, and initial results are not expected until 2014.

Some jurisdictions are not waiting for official study results. New York City and Syracuse, New York, have banned fracking in their watersheds, citing a study that concluded fracking could pose “catastrophic” risks to the prized local water supply. New Jersey is considering a ban, and Pittsburgh has prohibited the practice within city limits. The Canadian province of Quebec recently banned fracking completely, even though the province hosts considerable shale gas potential. In Australia, fracking has been sweeping the Queensland countryside, and a furor is building among landowners. Shale exploration is similarly spreading quickly and causing strife across Europe.

Nevertheless, Blackstone’s $1 billion entry into the field suggests fracking is still a hot topic. Blackstone is not the only major making a major shale splash: a year ago, Indian materials and energy giant Reliance Industries struck a deal with Pennsylvania-based Atlas Energy to team up in developing Atlas’ more than 500,000 acres of Marcellus land. The deal is worth $1.7 billion over five years, or $3.5 billion over 10 years.

So what should the investor do? First, it is not important to decide whether or not fracking is damaging to people and the environment. The Senate committee and the EPA are working on that (albeit through numerous politicians and lobbyists – good luck to them). What the investor needs to do is the same as always: separate the wheat from the chaff.

In that analysis, remember these points.

1. Unconventional exploration, including fracking, is a phenomenon that will forever change the face of hydrocarbon exploration. We applaud those trying to find new ways to tap into the earth’s resources.
2. Natural gas prices are depressed because of oversupply in North America. Oil prices, on the other hand, are high. If you want exposure to unconventional exploration, choose a company that is working in both areas, or potentially just in unconventional oil. You rarely win when you’re fighting against a low commodity price.
3. Every successful development in exploration attracts bandwagoners, companies that want to ride the wave even though they are not really involved in the action. Check maps to verify a company’s land position is actually within the basin in question; check cash balances to see if the company has enough money to drill. Do your due diligence.
4. Where there are congressional committees and controversy, laws are apt to change. Fracking is coming under considerable scrutiny at the state and federal levels, so keep your eyes peeled for news about challenges or change to the regulations governing fracking.

Oil and gas companies can be terrific profit opportunities if you know what to look for – and Casey Chief Energy Strategist Marin Katusa does better than anyone else. He has just discovered a company that benefits from OPEC’s greatest nightmare and is poised to make a fortune on oil exploration in the heart of the Middle East. Read more here.