Big profits for private equity...

 We've recently seen China investing massive resources into the U.S. shale boom… Sinopec, a major state-run Chinese oil firm, invested $1 billion in natural gas producer Chesapeake Energy's shale assets. CNOOC, China's largest oil company, is also looking to make major purchases… In total, Chinese explorers are looking to put $40 billion to work in U.S. shale assets.

China, as you may know, also has massive shale reserves of its own. It's investing in U.S. companies because it needs the technology to extract that shale…

 I (Porter) have feared that we would produce so much oil in the U.S. that the price of oil would collapse and many of the leading shale companies would suffer. All these companies have been capitalized assuming oil prices would never fall. For example, Devon Energy, which is one of the stocks I've recommended in my Investment Advisory, has around $22 billion in debt. Its tangible capital base is only $15 billion.

Under normal circumstances, Devon isn't overleveraged. But if the price of oil were to plummet, even an established company, like Devon, could find itself in a capital squeeze.

That's why you need to be very careful and invest in these companies when you can get a big discount to the value of their assets, as we have done in my Investment Advisory.

 For the good of our country and the oil industry, you want stable oil prices. And you would prefer for the prices to be low. What you don't want is major price volatility… That makes it difficult for entrepreneurs to pursue assets, which in turn makes oil more expensive for the consumers.

And China's financial backing could help provide some stability to our own industry.

 But the most important thing that needs to be done is the Obama administration needs to get a clue… We need to legalize the export of crude oil and approve the construction of more liquefied natural gas (LNG) export facilities.

With more LNG export facilities, we would be able to move the tremendous overproduction we have of natural gas to foreign countries (where natural gas prices are much higher).

 When you drill shale wells for oil, you also end up producing a ton of "associated gas" as a byproduct. And in many cases, the production cost of this gas is less than zero… Companies have to burn the gas off if no pipeline (or other means of transportation) is available. And with natural gas prices so low today – $3.68 per thousand cubic feet (mcf) – there isn't any capital to construct more gathering facilities.

If we had natural gas at $5 or $6 per mcf, the capital would be there to build the facilities to move energy offshore. And we'd see a huge boom in the industry.

Right now, there are over 20 applications pending for the construction of LNG export facilities. But the Obama administration will not approve them. 

 And at some point, we'll have to change the laws about exporting crude oil. We're going to have a tremendous surplus of crude oil. If you know anything about economics or comparative advantage or trade, we've got to be able to trade our excess of crude oil for other things that our country wants and needs.

But the mindset of our leadership is set back in the 1970s, when everyone believed we would run out of oil… And that if we run out of oil, our military will collapse and we'll be overrun by foreign invaders. That's what this is all about. They think of oil as a strategic commodity, and they don't want to see it exported to any potential military rival. But that is completely backwards thinking.

 We have almost unlimited sources of oil in our country – more than 100 years of supply at current production rates. We need to put this oil to its highest and best use, which may be shipping it to a foreign refinery. And if you would allow the flow of energy to be free across our borders in the United States, you would have a lower cost of energy going forward.

You would have a lower cost of gasoline going forward because the trade would make our dollar stronger… which would make commodity prices lower… which would make the economy more efficient… which would make all these things cheaper in real terms.

 But I don't expect President Obama to see this… I don't expect him to do anything that makes sense.

Maybe the next president will allow us to export LNG and oil… But it might not be until 10 years from now, at which point our entire domestic oil and gas industry will be wiped out because of the tremendous overproduction and politicians' refusal to help equalize markets.

I can't predict what the politicians will do. It's hard enough trying to know what will happen in a free market... guessing what will happen in a rigged market is impossible. And that's what we have in terms of the oil industry because Washington controls it all.

 However, when the government finally allows exports, energy companies will all boom. If you look at the stock prices for producers today, you'll see all of the natural gas production and reserves are ignored. The market is saying there will never be a time when American natural gas is a vital commodity. And I think that's a terrific opportunity for people who have the wherewithal and the ability to be a long-term investor in the space.

– Porter Stansberry with Sean Goldsmith

 Private-equity firms are currently enjoying the ideal environment for profits...

And our private-equity recommendations, Blackstone Group (BX) and Kohlberg Kravis Roberts (KKR), both recently hit new highs...

Trillions of fresh dollars are looking for a new home, thanks to the Federal Reserve's quantitative easing. And this credit expansion has pushed interest rates near zero percent, goading investors into riskier assets.

Private equity is collecting a lot of that money. With more assets under management, they're collecting bigger fees. Also, rising asset prices are boosting the values of private-equity portfolio companies (inflating their balance sheets and valuations). And there's a strong market for private-equity companies to sell their holdings...

In the first quarter, Blackstone sold its stakes in automotive safety products manufacturer TRW Automotive Holdings, oil and gas exploration company Kosmos Energy, and health care staffing company Team Health Holdings.

 For specifics on how the current economic environment is benefiting private equity, re-read the February 7 Digest, where we discussed KKR's earnings. Frank Curzio originally recommended KKR as a way for Small Stock Specialist subscribers to profit from the European debt crisis... The private-equity giant was purchasing European bank debt for 50 cents on the dollar.

KKR's earnings announcement last month displayed all the signs of the Western world's loose-money policies at work... the company's net income jumped 22% in the fourth quarter, making it the most profitable year since the firm went public in 2010. Its assets under management hit $75.5 billion, up from $59 billion in 2011. KKR's investments rose in value by $10 billion. The company returned $10.6 billion to investors after selling health care company HCA and discount retailer Dollar General.

And when KKR aimed to raise $6 billion in capital for its latest investment fund, it was oversubscribed, meaning it saw far more demand from potential investors than it could accommodate.

 Steve Sjuggerud recommended Blackstone in True Wealth as a way for subscribers to profit from the uptrend in real estate. As of January, the private-equity behemoth had spent more than $2.5 billion purchasing 16,000 homes. In total, Blackstone's real estate fund has more than $13 billion in assets. It overtook the firm's core private-equity portfolio in size last year. You can read more about Blackstone's real estate investments in the January 9 Digest.

 KKR is about to offer a $500 million real estate fund to investors. The firm started its real estate unit in 2011. Unlike Blackstone, KKR is focusing on commercial deals.

"We've got a real sense of urgency around scaling into these businesses and grabbing as much land as we can," Scott Nuttall, KKR's head of global capital and asset management, said during an investing conference in September.

 Steve and Frank are both bullish on the sector's prospects today... In a recent Growth Stock Wire, Frank said he believes private-equity firms will start capturing more of the world's $30 trillion in retirement assets...

More assets means more fees for these companies, which is another reason we believe they'll continue to mint cash.

Steve's True Wealth readers are already up 51% in four months on Blackstone. Frank's Small Stock Specialist readers are up 45% in eight months on KKR.

 While the U.S. market continues to hit new highs, Chinese stocks hit a two-month low today...

The Chinese are worried about inflation. In a press conference today, Zhou Xiachuan, governor of China's central bank, said China must be "on high alert" against inflation. Zhou said the country's monetary policy is switching from "relaxed" to "neutral." His announcement came one week after Chinese inflation jumped to a 10-month high of 3.2% (more than expected).

 The Chinese government is also trying to cool a real estate market that has appreciated "excessively fast." The government is raising down payments for second mortgages and levying a 20% capital-gains tax on real estate to curb speculation and flipping.

Last week, billionaire hedge-fund manager Kyle Bass spoke at the University of Chicago Booth School of Business' Initiative on Global Markets. And he outlined his bearish thesis on Japan.

Japan is trying to kickstart inflation with its monetary easing. And Bass believes the efforts will eventually cause the Japanese economy to buckle under the weight of its debt as interest rates explode and the yen collapses.

True Wealth readers know Steve is bullish on Japanese equities for essentially the same reason. The country is printing tons of money to goose the markets. Steve's readers have made 25% and 18% on his two recommendations, which will continue to profit from Japan's rising stock markets. Steve believes Japan's economy will eventually suffer, but he thinks there will be a soaring stock market in 2013 before that happens.

 Bass' views on Japan are nothing new. But his commentary on reckless risk-taking by banks was interesting...

 Bass means banks are selling him super-cheap protection against a Japanese collapse. In 2010, when Bass spoke at the Value Investing Congress, he said he was buying interest-rate call options to profit from Japan's collapse. He pays a small, defined amount of money every year in hopes of a much larger payout (50 to 100 times his money) in the future.

It's similar to credit default swaps (CDS). CDSes were the same instrument Bass and billionaire hedge-fund manager John Paulson used to successfully bet against the housing market.

A CDS is essentially an insurance policy... The owners of the CDS pay a percentage every year to insure themselves against losses due to default (usually sold in $10 million increments). But if you don't actually own what you're insuring, you don't suffer the loss. And you simply make money on the "insurance."

In Bass' example, he says banks are selling him protection for one basis point (or 1/100th of a percent). So it costs him $1,000 a year to insure against losses on $10 million of credit products... In other words, if Japan crashes, he'll make $10 million for every contract. And he's bought $500 billion of these options.

He says "the AIG of the world is back" because AIG was one of the largest issuers of CDSes leading up to the housing crash. The issuer's potential losses ($10 million per contract) aren't carried on the balance sheet, so the $1,000 a year it collects in premiums is all profit... until the market turns.

 Bass also said one bank he bought "cheap options" from recently called him asking to close the position... "That happened to me before in 2007, right before mortgages cracked."

Bass said his best investment idea for the next decade is to "sell Japanese yen, buy gold, and go to sleep." He says, "We're right back [to how things were before the 2008 crash]. The brevity of financial memory is about two years."

 As Porter discussed in last Friday's Digest, new highs for stocks doesn't mean his "End of America" thesis is wrong... It's just being amplified by the massive amounts of money global central banks are printing. The risks are still real. And while we're bullish on equities for the near future, we know how this will end...

Porter has focused on recommending capital-efficient companies and the greatest businesses in the world, which will prosper during a period of inflation... And he's advised subscribers about the best way to protect their wealth during the inevitable collapse of the U.S. dollar.

 Porter has also been recommending companies on the cusp of a major technological boom. As he wrote in the February 22 Digest...

To learn more about Stansberry's Investment Advisory and how Porter recommends protecting yourself and profiting from these trends, click here. We offer his service with a 100% money-back guarantee.

 
 New 52-week highs (as of 3/12/13): ProShares Ultra Biotech Fund (BIB), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Insurance Fund (IAK), iShares Biotech Fund (IBB), ProShares Ultra Health Care Fund (RXL), W.R. Berkley (WRB), Johnson & Johnson (JNJ), Automatic Data Processing (ADP), Chicago Bridge & Iron (CBI), American Financial Group (AFG), Alleghany (Y), Blackstone Group (BX), Becton-Dickinson (BDX), Chart Industries (GTLS), Two Harbors (TWO), and Sysco (SYY).

 More subscribers wrote in about Porter's response in Monday's Digest to an angry subscriber. Send us your feedback, about any topic, here... feedback@stansberryresearch.com.

 "I would assume that a majority of the people that call you guys swindlers are people that are confusing your service with a get rich quick scheme. They misinterpret the marketing emails and promotional ads for promises of good recommendations at low cost that will somehow make them rich in a few months time. (The marketing emails surely can be annoying at times but they have gotten me to subscribe to letters that I otherwise wouldn't have researched.) These guys have no interest in actually learning how to value companies and determine value by doing some research and, God forbid, using their brain to think!

"Porter has said over and over that there is no such thing as teaching, only learning. I subscribe to three services and I think of the authors as my three mentors. I also love hearing from Jeff Clark on Growth Stock Wire so I actually have more than 3. I desire to learn these principles that they write about. I want to learn so I can become as independent as possible because I want to improve the quality of life for myself and my future family. I'm 25 but I know value when I see it, and the fact that some people think they are getting ripped off is alarming.

"I would prefer not to be so blunt, however it needs to be mentioned that some people are just losers, and they feel the need to place blame on others. I guess it's just a lack of responsibility and integrity on their part. It's a sad state of affairs but it is pretty evident to me." – Paid-up subscriber Luke B

 "Remember what Ron White says: 'You can't fix stupid.' Keep up the great work!" – Paid-up subscriber Todd

Regards,

Sean Goldsmith 
Miami Beach, Florida 
March 13, 2013