Energy a Big Drag In case you didn’t notice, the energy sector took it on the chin with regard to performance in the most recent second quarter. Led by weakness in price from oil and natural gas prices, most energy sectors of the S&P 500, including the more passive energy MLPs, were much weaker than the market in general. Forecasting oil and gas prices is always a difficult task with many volatile twists and turns. Besides the major indicator of economic growth, unrest in the Middle East, major supply disruptions from hurricanes can swing prices dramatically with only minor changes in overall demand. Finally, left to their own methods, the oil and gas industry has the ability to restore stability and profitability by cutting back production and drilling activityWhile the sudden drop in oil and gas prices during the last quarter was tough on performance, it should provide some much needed economic growth in the U.S. even as unemployment remains a struggle. Importantly, most of our investments in the Master Limited Partnerships are acting better over the last two weeks that may suggest the sharp drop was an overreaction by investors fearing both the sharp decline of the Euro and a global economic slowdown. My belief is that investors will gradually return to dividend and interest paying energy stocks and bonds in the second half of the year in search of yield and relative safety. Historically, the second half of the year has been kinder to energy group performance due to seasonality and a few natural disruptions (hurricanes).Looking at the energy service companies is a trickier proposition. First, their profitability depends on a healthy exploration and production environment as well as stability regarding rig count and spending activities from leading oil and gas companies. Last week, Jim Crandell of Dalman Rose, produced his exploration and production spending survey for the second half of 2012. Overall E&P spending will likely increase 11% worldwide, led by international E&P spending forecasting growth of 12% year-over-year in 2012. The difficulty comes into play because if companies are drilling robustly for more oil and natural gas it can have negative short term implications for oil and natural gas prices. Therefore, energy service companies lag the exploration companies in both declining and improving market environments. Similar to insurance companies, a little hurricane and natural disruption activity would not be a bag thing for service companies. I expect these companies to respond better in the fourth quarter of 2012.Overall, my plan is to focus on the dividend and interest paying companies, top-tier exploration companies, and finally those international service companies taking advantage of growth in emerging markets. As always, there are a number of variables that will play a part in the swings in oil and gas companies. I look forward to the next few months for good investment opportunities.Have a great week,Roger N. Steed July 9, 2012KRS Capital Management, LLC (“KRS Capital Management” or “Adviser”) is a fee-only SEC registered investment adviser located in the State of Michigan. KRS Capital Management does not receive any compensation from any of the mutual fund companies, brokers or entities connected with securities mentioned herein. KRS Capital Management and its representatives are in compliance with the current notice filing requirements imposed upon SEC registered investment advisers by those states in which KRS Capital Management maintains clients. KRS Capital Management may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements.KRS Capital Management’s newsletter services are limited to the dissemination of general information that is financial and/or investment related to United States residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the content in this newsletter should not be construed by any consumer and/or prospective client as KRS Capital Management’s solicitation to effect or attempt to effect transactions in securities or the rendering of personalized investment advice for compensation via this medium. Furthermore, the information resulting from the use of data or other information in this newsletter should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from KRS Capital Management. Any products mentioned in this newsletter may not be eligible for sale in some states or countries, and they may not be suitable for you. Before buying or selling any mutual fund, exchange-traded fund, security, or investment, read the prospectus carefully. KRS Capital Management is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.*KRS Capital Management’s newsletters may contain opinions and statements concerning or related to securities and investments. The Adviser does not represent, endorse, or warrant the timeliness, sequence, accuracy, or reliability of any such information. Certain portions of KRS Capital Management’s web site and publications (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, the Adviser’s (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from the Adviser or from any other investment professional. Where individual companies or types of investments are named herein, it is for representational examples only are not in any way to be construed as securities recommendations. KRS Capital Management cannot and does not give any assurance that the companies that may be included in our newsletters, present or future, will be profitable. Owners and staff members of KRS Capital Management may own various investments (included those that may be listed in our newsletters). Any one or more of their positions may not necessarily be the same as that of a client of KRS Capital Management. The owners and employees of KRS Capital Management may also for their own accounts buy, sell, or hold long or short positions in mutual funds, exchange-traded funds, common stocks or other securities of companies mentioned in the Adviser’s publications. Investments carry an inherent element of risk, including the potential for loss of principal. Please seek personalized and professional assistance from your personal fee-only Registered Investment Adviser before making investment decisions.A copy of KRS Capital Management’s current written disclosure statement discussing KRS Capital Management’s business operations, services, and fees is available from KRS Capital Management upon written request. KRS Capital Management does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party incorporated herein and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Where general market data or statistics are provided herein, they are provided by sources that we have deemed to be reliable.You may not use, adopt or attempt to register anywhere in the world, whether alone or together with any other mark, symbol, or name, any KRS Capital Management trade name or mark or service name or mark that is similar or confusingly similar to the KRS Capital Management trademarks. All other trademarks, service marks, brands, and names are the property of their respective owners.