Back from Grant's... Stretching to go long... The sentiment in 2007... Badiali's latest triple-digit winner... One of the world's best precious-metals investors says what he likes... TradeStops vs. the S&A Grail Trader...
Editor's note: Porter Stansberry will be on Roger Hedgecock's radio show tonight at 8:30 p.m. Eastern time discussing his End of America thesis. The show is on XM Satellite Channel 158. Please tune in if you can.
I'm back in the office after the Grant's conference yesterday. I'm not allowed to write much about it... Jim Grant always publishes a summary of the conference in his newsletter. But I can say the speakers struggled to present compelling long ideas. A few said they liked World Dominator stocks (companies like McDonald's). They have pricing power and can thrive in an inflationary environment.
Seth Klarman, who is notoriously secretive about his investments, said he's finding opportunities in private commercial real estate. (Note his recent investment in Atlanta.) Unfortunately, you can't take advantage of these plays with real estate investment trusts (REITs). The cap rates (rental yield) are half those of private-market opportunities.
Another speaker said he likes a specific newspaper publisher. (Again, I'm holding back the name to honor Grant's request.) To me, buying into a dead industry seems ludicrous. The newspaper in question is saddled with debt and its pension is massively underfunded. Sure... You could still make money buying this company, but why risk it?
The basic conclusion... The market will likely head higher. It's a function of the trillions of dollars the government is pumping into the system. But buying today is risky. When the correction comes, it will be fast.
I was counting on Steve Eisman for a great short-sale opportunity. But Eisman said he's not presenting short-sale opportunities after the huge press (and subsequent controversy) surrounding his short sale of for-profit education stocks.
Coincidentally, I attended my first Grant's conference in the fall of 2007 – just before the crash. I reread the Grant's issue about that conference today to gauge the sentiment of the presenters. (Grant's subscribers can check his October 5, 2007 issue.) They were bearish. And much like at this year's event, the presenters struggled to provide good long ideas. They were all cautious of the market's rise.
At the 2007 conference, Jim Chanos, the founder of short-selling hedge fund Kynikos Associates, questioned how investment banks were able to produce such incredible and consistent returns on equity. We later found out it was due to massive leverage (in some cases greater than 35-to-one) and manipulating the value of mortgage securities.
Chanos and Jeremy Grantham, of the investment firm GMO, both agreed private equity was in a huge bubble at the time. (Grantham also noted global profit margins were at a peak... He's big on mean reversion.)
Real estate billionaire Sam Zell also presented on the subject of private equity at that 2007 conference. He had recently completed the sale of Equity Office Properties, his giant real estate company, to private-equity firm Blackstone for $40 billion. By the time of the conference, Blackstone had flipped most of the real estate from the deal for a profit. Zell said he was happy to give up 6%-7% of the upside in return for banking $40 billion. He said he would do that deal "all day long."
I think we're currently in a similar situation to the one Zell described in late 2007. We may see some small upside from here, but we should be happy banking profits. And we should be looking for ways to protect ourselves from a downturn.
Our favorite asset class today is still gold and silver. In fact, S&A Resource Report editor Matt Badiali is dedicating his issue due out next week to the metals. He recently interviewed one of the world's best precious metals investors. In the issue, he's going to discuss that interview and his favorite gold and silver plays today. And speaking of Badiali...
His super string of triple-digit winners continues…
This time it's with a "picks and shovels" play on the huge boom in domestic natural gas exploration.
As many readers know, new drilling techniques – horizontal drilling and hydraulic fracturing (or "fraccing") – have unlocked vast new stores of U.S. natural gas. In less than 10 years, these new technologies have allowed the U.S. to go from dwindling supplies and plans for importing gas to boasting huge reserves of the stuff. We expect other regions like Europe and Asia to follow suit with this new kind of drilling.
One of Matt's top ideas to play this drilling boom is through shares of CARBO Ceramics. CARBO is one of the world's largest producers of the "ammo" needed to "frac" the tight rock layers that contain the gas. As drillers continued their mad dash for gas in 2010, CARBO's sales climbed 33% over the previous year. International sales volume climbed 37% during the year. As you can see from the two-year chart below, the stock is enjoying a huge uptrend as a result... and Matt's readers are up 130% on the stock in a little more than a year.
So where does Matt see the next opportunity for big gains in natural resources? Here's what he tells us:
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I'm continuing to urge readers to "hoard" the world's biggest and most valuable resource deposits. In just the past few months, we've taken a position in a giant, cheap, dividend-paying hoard of natural gas... and we've taken a position in the world's biggest safe hoard of crude oil... which also pays a nice dividend. As energy prices continue to trend higher, I expect these two stocks to double and triple in value. For anyone interested in parking their wealth in real, tangible assets instead of depreciating paper dollars, these two stocks are no-brainers. |
You can access Matt's write-ups on these two "escape the dollar" plays with a trial subscription to the S&A Resource Report. You'll also receive the next issue... in which Matt discusses what he's learned with one of the ultimate insiders in the gold and silver market. Click here to learn more about the advisory.
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New 52-week highs (as of 3/29/11): CARBO Ceramics (CRR), Calpine (CPN), Hershey (HSY), HMS Holdings (HMSY), Molina Healthcare (MOH), Dorchester Minerals (DMLP), Magnum Hunter Resources (MHR), SandRidge Energy (SD), Tejon Ranch (TRC), SVB Financial (SIVB), Philip Morris (PM), Alexander & Baldwin (ALEX).
We've received tons of letters from you saying you've contacted DirecTV on our behalf. Thanks again. Please send your e-mails for us to feedback@stansberryresearch.com.
"I have been a reluctant subscriber to DirecTV for over 5 years. We were quite happy with BrightHouse before moving from Tampa. On the subject of censoring, I see nothing offensive about your 'End Of America' commercial. On the other hand, I am offended daily by a stream of Cialis commercials... usually at dinnertime. I strongly question their standards!" – Paid-up subscriber Jim MacGregor
"What is the differance between the Trade Stops (Magic Formula) offered by DailyWealth and the S&A Grail Trader you offer? How would this help a first timer in the stock trade?" – Paid-up subscriber AV
Goldsmith comment: TradeStops is simply a program to help you track the trailing stops you set on your stocks. By using this program, you don't have to enter your stops into the market. And it alerts you when it's time to sell. It's an incredibly useful tool. You can learn more about it here...
The S&A Grail Trader, on the other hand, is a technical trading service. The Grail uses a proprietary system to alert subscribers exactly when a stock or sector is going to break out. And this service provides you with specific stock recommendations. (TradeStops does not.) To learn more about the Grail Trader, click here...
Regards,
Sean Goldsmith
Baltimore, Maryland
March 30, 2011