Draghi drops the bomb... Sjuggerud: "exactly what we were hoping for"... Big deal for Cheniere... Medtronic wants to move abroad... Major win for InterDigital... Profiting from marijuana...
Mario Draghi didn't disappoint...
The president of the European Central Bank (ECB) kept his word... and further stimulated the eurozone economy.
If you're a regular reader of the Digest and Steve Sjuggerud's True Wealth, you were ready for the move (and you've made handsome profits today).
In the most recent True Wealth, which came out May 16, Steve predicted Draghi would ease this month to fight low inflation in the European currency union (commonly called the "eurozone"). As a result, the euro would fall and European stocks would rise.
Draghi gave a clear signal he would introduce more quantitative easing this month... Steve told his readers to invest alongside the ECB. When the head of a major central bank, with the ability to print trillions of dollars, says he's going to boost the economy... don't be on the other side of the bet.
We've seen what a determined central bank president can do to an economy...
Steve wrote:
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The ECB cut the rate on the deposit facility (the rate banks receive to park cash at the central bank) to negative 0.10%... The change comes into effect on June 11.
As we explained in the June 3 Digest, negative deposit rates mean banks will actually pay to keep cash at the ECB. It's a way to motivate European banks to lend more to boost the economy.
To further support bank lending, the ECB announced 400 billion euros of targeted long-term refinancing operations (TLTRO). It's a fancy way of saying the ECB is lending banks money. In this case, Draghi said banks can borrow up to 7% "of the total amount of their loans to the euro area nonfinancial private sector," excluding home loans.
The ECB also lowered the interest rate on the main refinancing operations (MROs) by 10 basis points to 0.15%. MROs are low-interest-rate funds the ECB provides to banks on a weekly basis in exchange for sovereign debt in collateral.
It lowered the rate on the marginal lending facility (what it charges for overnight credit from the ECB) by 35 basis points to 0.4%.
Draghi also said the ECB stands ready to make direct asset-backed securities purchases. But it hasn't announced any yet.
There weren't any major moves on Draghi's announcement today... The market was expecting something along these lines.
Still, it was "exactly what we were hoping for," Sjuggerud told me on the phone this morning. "This is the Bernanke Asset Bubble moved abroad."
Digest readers understand the massive amount of natural gas being produced domestically thanks to the shale boom. We're producing so much natural gas that some companies are burning it at the well ("flaring it off") rather than capturing it.
Why would companies spend money to waste a valuable asset like natural gas? Natural gas is often found alongside oil in shale. So despite the low price (around $4.60 per thousand cubic feet, or mcf) of gas, these companies are still producing it as a byproduct of oil drilling. We have more of the resource than we can use... And we can't export natural gas... yet. (More on this in a moment.)
Cheap natural gas is leading to an industrial renaissance in the U.S. More and more companies are building factories in the U.S. to take advantage of low natural gas prices. And we're building a network of compressed natural gas (CNG) filling stations to cater to the growing number of natural-gas-powered trucks.
We'll also retire around 13% of our nation's coal-fired power plants, replacing them with natural-gas-powered plants (which burn much cleaner).
But the greatest use of our massive natural gas resources is exporting. And the first company that will be able to legally export natural gas is Cheniere Energy (LNG).
The government granted Cheniere's Sabine Pass, Louisiana facility approval to export in 2011. The company expects to begin exporting in 2015.
Porter predicts new domestic demand and the expansion in export capacity will cause the price of natural gas in the U.S. to hit around $10 per mcf. When that happens, he says, U.S. natural gas producers will be "some of the most profitable businesses in the world."
To ship natural gas, you have to liquefy it and send it in ships across the globe... That process can add an extra $6 per mcf to its costs. But at current prices, it's still far cheaper than the $16 per mcf Japan currently pays... And it's in line with the roughly $10.50 per mcf most of Europe pays.
And Europe, it seems, is thirstier than ever for our gas...
This week, Cheniere Energy signed a 20-year deal to provide liquefied natural gas (LNG) to Spanish utility Iberdrola. It's the first customer to sign up for future deliveries from a new liquefaction and purification facility in Corpus Christi, Texas. Iberdrola will initially purchase 400,000 metric tons, and that will double to 800,000 in 2019.
Think about it... The Spanish utility signed a 20-year deal to purchase our natural gas before Cheniere will even be able to export it. As we said above, exporting natural gas will be a boon for domestic producers.
Cheniere's stock increased 14% on the news to a new high.
Cheniere's lock on U.S. exports of natural gas is one of the reasons the company landed on the Stansberry's Investment Advisory Trophy Asset Monitor. The Trophy Asset Monitor tracks the stocks that control some of the highest-quality assets in the world. Porter's team uses it to identify opportunities to buy these stocks when they trade at steep discounts (25% or more) to the value of their assets.
And what's Cheniere's trophy asset? Cheniere operates and develops natural gas liquefaction and export facilities in Louisiana and Texas. Essentially, it controls a toll station between an ocean of American natural gas and foreign demand. Yes, other companies are winning federal licenses to export, too. But Cheniere's five-year head start is a huge advantage... It makes those facilities very valuable.
Stansberry's Investment Advisory recommendation Medtronic (MDT) jumped 3.6% yesterday on news it is evaluating a takeover of London-based medical-technology company Smith & Nephew.
Medtronic, one of the world's largest medical-device makers, would use Smith & Nephew's corporate shell to move its legal residence to the U.K., where it would save a fortune in taxes. The U.K. has a 21% corporate income tax rate versus a 35% U.S. income tax rate.
This is the same kind of transaction we saw pharmaceutical giant Pfizer attempt with its purchase of UK-based AstraZeneca.
Our Editor in Chief, Brian Hunt, wrote a great essay in Friday's Digest, explaining an asset he says is a better inflation hedge than gold...
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He presents some great numbers showing how businesses have outperformed gold over the long term... It's a controversial, but important idea. You can read the full essay here...
We wrote it, did you buy it?
From the April issue of Phase 1 Investor:
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This week, Samsung caved in to InterDigital's lawsuits... The electronics giant settled, agreeing to a long-term licensing agreement that will pay IDCC around $500 million by 2017.
Shares of IDCC jumped 21% on the news. Phase 1 readers are up nearly 30% since April on the recommendation.
In a recent Phase 1 issue, Frank Curzio made one of his most controversial recommendations ever...
On January 1 of this year, Colorado became the first state in the country to allow the recreational sale of marijuana.
Today, the legalization of marijuana is on the ballot of another 13 states... It's only a matter of time before this drug is legal nationwide.
A few weeks ago, Florida passed a bill allowing limited use of medical marijuana. Portland, Maine has also voted to legalize it within their city limits. And the governor of Maryland just signed a bill decriminalizing marijuana possession in the state.
Why are states suddenly warming up to marijuana? In short, they're broke... And they need the tax revenue.
Marijuana is the third-most-popular recreational drug in America, after alcohol and tobacco. Alcohol has grown to a $200 billion market in the U.S. Tobacco is an $80 billion-a-year industry.
Early estimates suggest marijuana could become an $8 billion-a-year industry by 2018... But we think those estimates are low.
The investment world is already catching on to the huge profit potential in marijuana stocks. (Yes, there are several publicly traded ways to profit from this trend.)
As Curzio wrote:
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Frank is taking advantage of the massive selloff to get into our country's next multibillion-dollar industry at a bargain-basement price.
He found one of the most conservative ways to play the marijuana trend. It's essentially a royalty company (one of our favorite business models in the world). And this company is invested in what we think is one of the best ways to play the burgeoning marijuana business in America.
It's a backdoor way to gain exposure to this market... And it's much more conservative than buying one of these marijuana companies outright.
Frank wrote a report explaining the entire situation for Phase 1 readers... It's an incredible story. You can learn more here...
New 52-week highs (as of 6/4/14): Apple (AAPL), American Financial Group (AFG), American Homes 4 Rent (AMH), Becton-Dickinson (BDX), Blackstone Mortgage Trust (BXMT), Calpine (CPN), Carrizo Oil & Gas (CRZO), Discover Financial Services (DFS), Devon Energy (DVN), Energy Transfer Equity (ETE), Freehold Royalties (FRU.TO), iShares Dow Jones U.S. Insurance Fund (IAK), Johnson & Johnson (JNJ), Medtronic (MDT), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares Buyback Achievers Fund (PKW), PowerShares QQQ Trust (QQQ), ProShares Ultra Technology Fund (ROM), Sabine Royalty Trust (SBR), Market Vectors India Small-Cap Fund (SCIF), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SKWS), Cambria Shareholder Yield ETF (SYLD), Targa Resources (TRGP), Travelers (TRV), Walgreens (WAG), W.R. Berkley (WRB), and Alleghany (Y).
In today's mailbag... one reader offers compliments on all the educational material editor Amber Lee Mason provides in DailyWealth Trader. Send your comments, complaints, and concerns to feedback@stansberryresearch.com.
"Thank you a million times over for your DailyWealth Trader service. While I do act on your recommendations occasionally, that's not my point here. I read your daily missives for what I can learn. I really appreciate your conservative approach (ex: cash-covered puts vs "on margin").
"Your Q&A is as valuable to me as your recommendations. None of us ever knows it all, so there is always more to learn. Your responses to the questions often fill in yet another gap in my knowledge. Keep up the good work." – Paid-up subscriber CW
Regards,
Sean Goldsmith
June 5, 2014
Why American oil production is far from peaking...
In today's Digest Premium, Porter Stansberry and oilman Cactus Schroeder discuss why U.S. oil production could triple within the next decade.
To subscribe to Digest Premium and access today's analysis, click here.
Why American oil production is far from peaking...
Editor's note: Today's Digest Premium is from the June 4 subscriber-only Stansberry Radio Black Label podcast.
On that show, S&A founder and show host Porter Stansberry welcomed on his friend Cactus Schroeder, a highly successful wildcat oilman.
Porter Stansberry: We started writing about the shale plays in 2009 and 2010... As of today, the state of Texas alone is producing almost 3 million barrels of crude oil a day. That makes the state of Texas the largest producer of crude oil in the world after Saudi Arabia. There's nobody bigger. So Texas alone is No. 2. And if you go back to when we started writing about it, production in Texas was almost kaput.
We wrote some really strong things back then about how the Eagle Ford would be the biggest oilfield in U.S. history, how there would soon be a new all-time high in oil production in the United States. At the time, people thought I was a lunatic. And I tried to shield you from the criticism, but you were, of course, my main source.
So what I wanted to ask you, Cactus, is in general, do you see oil production in Texas continuing to increase? Or do you believe that the productive capacity of the shales has peaked?
Cactus Schroeder: Oh, no, we're not even close to peaking. Currently, the science that we have only allows us to get 5% of the oil out of these shale rocks. As technology continues to increase and we learn more about these rocks, I think we're going to get 10%-15% of the oil that's in place.
PS: I've been saying this for so many years, but people don't really have an idea yet of the scope of what we're talking about...
There are 20 billion barrels of recoverable oil in the Bakken Shale [in Montana and North Dakota], 20 billion barrels of recoverable oil in the Eagle Ford [in Texas], and 20 billion barrels (potentially much more) in the Permian Shales [in Texas].
CS: Yeah, they're saying higher in the Permian now.
PS: And a lot of these places already have infrastructure in place, so there isn't as much delay in getting them onboard. But in the Bakken, there will be pipelines and things that need to be built, and expansions of pipelines in Texas...
About four or five years ago, I was calling for a new all-time high in U.S. oil production within a decade, assuming oil prices stayed above $85 or $90 a barrel. It was a big assumption. But peak oil production in the U.S. was 9 million barrels a day... And I think we could see U.S. production of 20 million barrels a day within a decade. And that's just with the existing technology and existing fields.
CS: It's going to be an amazing trip. It's going to be not only good for Texas, but for the entire United States. I think you're going to see even with all the roadblocks thrown in front of us that we're still going to overcome those roadblocks and the economy's going to continue to get better and better.
Why American oil production is far from peaking...
In today's Digest Premium, Porter Stansberry and oilman Cactus Schroeder discuss why U.S. oil production could triple within the next decade.
To continue reading, scroll down or click here.