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Wilbur Ross: Energy Downturn Different This Time

Monday, 16 Jul 2012 | 6:19 PM ET

Investing in energy has been a cyclical endeavor. But that may be changing, at least on some fronts.

If you put money to work in any stock that’s somehow pegged to coal, billionaire investor Wilbur Ross suggests rethinking your thesis.

“The current downturn is secular,” he says. “In the past it's been cyclical but not now. The last time coal traded at these levels the industry turned higher but I don’t think that happens this time.”

In a live interview on CNBC’s Fast Money Wilbur explains that cheaper nat gas, a mild winter and new EPA rules have changed the game. He doesn't see how coal prices can rebound enough to generate a meaningful rally in the sector.

The Coal Trade: Up In Smoke?
U.S. demand for coal is at a 24-year low, and inventories are continuing to build as the global economy slows. Wilbur Ross, WL Ross & Company chairman/CEO, discusses whether investors should expect more trouble ahead for the commodity.

US demand for coal is at a 24-year low and inventories are continuing to build as the global economy slows, he reminds. Already the environment is taking its toll. On Monday July 9thPatriot Coal filed for bankruptcy protection. And he doesn't see the picture getting brighter until demand from China recovers.

But in addition to coal producers, Ross also has concerns about derivative trades.

“Some railroads have large dependency on coal, too,” and that could be a problem from their bottom line. However don’t paint all railroads with one brush, “Others do a big business hauling nat gas, ethanol and other liquids.”

In other words, you have to play the railroads very carefully, now.

And if you’re wondering if this is a short-selling opportunity, Ross tells us there are better trades. In these kinds of situations he says the best thing to do move onto the next thing. And one of his next things is nat gas - he's a buyer of Exco Resources.

“The EPA has clearly made a decision that’s quite antithetical for coal in the way of new rules they’re imposing on power plants.” And coal’s loss should be a gain for nat gas.

Posted by CNBC's Lee Brodie

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Trader disclosure: On July 16, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso is funds long ABX; Steve Grasso is funds long CUBA; Steve Grasso is funds long GERN; Steve Grasso is funds long HPQ; Steve Grasso is funds long HSPO; Steve Grasso is funds long MU; Steve Grasso is funds long NYX; Steve Grasso is funds long PRST; Steve Grasso is funds long VVUS; Steve Grasso is funds long XRX; Steve Grasso is funds long ZNGA; Steve Grasso is funds long CVH; Steve Grasso is funds long NEM; Steve Grasso is funds long TBT; Steve Grasso is funds long QQQ; Steve Grasso is funds long WLP; Steve Grasso is funds long ANF; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long GOOG; Karen Finerman is long YHOO; Karen Finerman is long M; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is shot MDY; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long JPM CALLS; Pete Najarian is long INTC; Pete Najarian is long SBUX; Pete Najarian is long FB; Pete Najarian is long V CALLS

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