A hearty congratulations to our old friend Cactus Schroeder. He and his partners just sold their Eagle Ford shale properties (Enduring Resources) to Norway's Statoil for more than $1 billion.
Cactus has given us lots of good investment leads in the oil patch over the years... but nothing this big. He told us months ago the Eagle Ford will end up the biggest-ever oil discovery in Texas. A lot of folks probably thought that was just "newsletter hyperbole" when we published the story in the April issue of Porter's newsletter (All the Oil In Texas). Nope. Not only did Cactus just sell his land for more than $1 billion, all of the world's biggest oil and gas companies are trying to get into the play. In addition to the big Statoil deal, China's largest oil and gas company, CNOOC, bought $1 billion worth of Eagle Ford leases from Chesapeake last weekend.
So where's the next big deal? Cactus will be presenting at our upcoming Alliance Conference in Switzerland, where he's promised me he'll do his best to show us where the next big deals in the Eagle Ford will be. Nothing's better than getting this kind of advice from a real pro... who's holding a new $1 billion deal that says he knows what he's doing. This presentation alone is worth the cost to join the Alliance.
You're getting a break this week... We're in New York (with Dan Ferris) for the sixth annual Value Investing Congress. This year, the speakers include David Einhorn, Bill Ackman, Lee Ainslie (a "Tiger Cub," or Julian Robertson protégé). Unlike the Ira Sohn Investment Conference, where Porter bellowed his infamous "boo," the speakers at VIC have ample time to present their thoughts on the economy and favorite stocks. The Digests will be short this week, as we'll all be in the conference from 8 a.m. to 5 p.m.
We're also in New York this week for another reason. We're working on a comprehensive solution to the estate tax...
We've been in discussions with an elite firm in New York that's developing a proprietary financial structure designed to shield your retirement account from the estate tax. This product is only for our wealthier readers – a minimum $2 million net worth.
When the estate tax returns on January 1, 2011, the government will claim more than 70% of your retirement account between estate and income taxes. In other words, a $1 million IRA is worth less than $300,000 to your heirs. Using a little-known IRS revenue procedure, this firm's product will take that same $1 million and turn it into more than $2.5 million for your heirs.
That's not a typo... Your heirs will go from receiving less than $300,000 to more than $2.5 million. And the process is 100% legal. We had one of the top law firms in the country review the entire process before agreeing to help promote this idea. There's only one problem... We know the IRS will move quickly to close this loophole, just like it has done to other such financial structures over the years. So if you want to use it, you'll have to act fast.
We will host a conference in New York soon (we don't have a date yet) to explain the process and allow you to meet with this special firm. If you would like an invitation to the conference, please send an e-mail to feedback@stansberryresearch.com with the subject line "RETIREMENT CONFERENCE" and your name. If you've already sent us an e-mail regarding the conference, don't send another... We've got your information. We'll be in touch with full details soon.
China has good reason to buy up energy resources around the world... It's running short on coal. China builds a new coal-fired power plant every week. It will soon surpass the U.S. as the world's largest producer of electricity, and coal fuels 80% of that electricity. Already China consumes 60% of Australia's coal exports... and Chinese demand for foreign coal doubled in the last year. Assuming that happens again, China will exhaust Australia's export capacity, something that would send global coal prices soaring...
We have serious concerns about what this would mean for U.S. power companies. As the U.S. prints more and more dollars to bail out banks, autoworkers, and insurance companies, much of that "stimulus" winds up in China, thanks to our enormous ongoing trade and account deficits.
You can think about it this way: The more the Fed prints, the more power plants China builds, and the more coal it will buy. Meanwhile, back in the U.S., our major coal-fired power plants have been subject to all kinds of expensive regulations... but haven't been allowed to raise prices enough to pay for the repairs. Many have been operating at a capital deficit since 2005. The power companies' balance sheets are now seriously weakened. Rising coal prices could literally bankrupt them...
As you've undoubtedly seen in the headlines, we're in the midst of a global "currency war." Large, developed economies are actively devaluaing their currencies in an attempt to jumpstart their economies. These "beggar-thy-neighbor" policies go hand in hand with paper money systems and have disastrous consequences – especially for capital-intensive businesses like operating a power grid.
The U.S. power grid is the best in the world. But it requires enormous amounts of capital to keep up. The collapsing dollar will make it harder for us to attract the capital investments we need to maintain the system. An investment in a power plant is a 30- to 50-year investment. You can't make that investment if you don't know what the value of the currency will be down the road – you can't hedge the value of the dollar for the next 20 years.
This is not just a long-term problem, either. You can think of coal as the "hard reality" sitting opposite of Ben Bernanke's paper printing press. You can't print a mine. Porter and Braden discuss the entire situation in the latest Stansberry's Investment Advisory, published last Friday. Click here to learn more about the advisory and access the report, titled "The Power Grid Will Fail Within 36 Months."
New highs: Anheuser-Busch InBev (BUD), Prestige Brands (PBH), DirecTV (DTV), WD-40 (WDFC), HMS Holdings (HMSY), iShares Silver (SLV), Enterprise Products (EPD), Kinder Morgan Energy Partners (KMP), McDonald's (MCD), Philip Morris (PM).
A couple long, but worthwhile e-mails in today's feedback... Send your thoughts and comments to feedback@stansberryresearch.com.
"Just read Sean's Digest for today. It's hard to tell your writing apart. Some thoughts... I spent my first 25 years working in manufacturing (a family business that my Grandfather started in 1907) By 1986, I had to shut it down. Watched manufacturing move South and then overseas.
"When I traveled to work, in the 1970s, every morning, I rode a 10-mile stretch of local expressway. I shared the road with a truck for every 8 or 10 cars. They delivered supplies, raw materials, packaging materials and finished goods to hundreds of large and small factories in the Philadelphia area.
"Now I work in a service business (for the last 24 years). I ride the same road each day to and from work. I'm lucky to see a truck on the road and it usually is a service truck for a contractor, like an HVAC company. We make diddley now.
"So Sean's Digest today hit right in the gut. Last week, I went to an alternative-energy forum, sponsored by PECO Energy, our electric and gas supplier and an Exelon subsidiary. I met a company that just bought an obsolete generation plant in Wilkes Barre, PA. They are gutting the place and replacing the power source with gas burners and contracting for gas at cheap prices from the Marcellus Shale being developed in the PA heartland. Pipelines are also being laid. This will be duplicated when AIP and Southern both go under.
"Additionally, If I were sitting in the executive offices of America's power companies, I would be looking for space at every generating plant, every sub-station, for where I can plant a 10,000 KW generator and be able to connect it to the grid if necessary. 4,000 of these boxes at 10,000 KW each equal 40,000,000 KW or 40 megawatts of power. If each power company did this, we could create 400 or 800 MW of new power, use our new, 'clean' source of power and be less dependant on coal." – Paid-up subscriber Frank Jay
"Friday's Digest stated: 'Meanwhile, the yield on two-year Treasurys fell to a record-low 0.36%. Deflationistas point to that one number (the falling Treasury yield) to make their case. But it doesn't matter what's going on with Treasurys. The world is getting more expensive. Inflation is here.'
"You know what? I think, perversely, that the drop in Treasury yields is yet another SYMPTON of inflation. Look at it this way: there's just a tidal wave of misguided money flowing into bond mutual funds. Joe Public isn't discriminating between commodities, or bonds. There's an ocean of money out there. Some of it is washing into gold, oil, industrial metals, and soft commodities, even stocks. Even more is washing into bonds.
"As you yourself have reported, individual investors have put more money in bond funds over the past 18-24 months than they put into stock funds at the top of the dot.com bubble!
"Low Treasury yields aren't a sign that investment professionals are erroneously expecting deflation. They're simply hired monkeys, charged with putting the money that the public is shoveling at them to work in the market that their fund mandate says they have to be fully invested in.
"The market is actually working! Interest rates are the price of money. Isn't it logical that if the government has opened the monetary spigots, and dialed the setting to 'maximum money creation,' that the price of money will fall dramatically? It is to me. Especially as no one really wants money right now for any other purpose than to pay down debt, or save it for another day, when they might have more confidence in the economy, and be willing to use it productively.
"You are absolutely correct that the inflation train has left the station. But, don't let low bond yields worry you. I think they BACK UP your argument, rather than refute it." – Paid-up subscriber Tim S.
"The October issue of the Investment Advisory newsletter is the most impressive and important of any I can recall. It reviews two electrical power companies that may go bankrupt from the rising cost of coal... Another article reviewing the actual non-coal power production would provide an interesting and useful contrast." – Paid-up subscriber Ed Myers
Porter comment: The role of coal is paramount. Coal plants provide the baseload power that makes the grid so reliable. Without reliable electricity from coal our entire economy will collapse. The other sources of power, while important, don't yet contribute very much (less than half) of the total electricity consumed in the U.S.
Regards,
Sean Goldsmith and Porter Stansberry
New York, New York and Baltimore, Maryland
October 11, 2010