How China is driving the natural gas market... Jeff's next triple-digit winner... Another hedgie goes down... How to account for short sale profits... "I love True Income"... 
We begin today's Digest with another note from Braden Copeland, who is currently attending Enercom's 15th Annual Oil & Gas Conference. As you'll see, two industry insiders tipped Braden off to what could be a huge demand driver for natural gas...
I asked what they believe will provide demand for natural gas coming from the shales. Ultimately, they said, it will be the ongoing transition from coal to gas-fueled power plants. But it's going to be a slow climb... the coal lobby is still powerful. It was nothing new. Then, they shared something with me that is new...
For years, one of the globe's largest exporters of coal has been South Africa. Two of their largest customers have been Japan and Europe. Recently, though, China has started buying. Apparently, the Chinese have bought so much of South Africa's capacity that Japan and Europe are scrambling to lock up supply elsewhere... And they're looking to the U.S.
They need a lot of gas. In fact, the Morgan Stanley analyst said he understands the coal drain by itself could lead to a 2% increase in natural gas use for electricity next year... on top of already expected growth. This surprise boost in demand would send gas soaring.
China's relentless demand for energy should provide long-term buying support for all kinds of resources: oil, gas, coal, uranium. Our resource specialist, Matt Badiali, recently wrote in our free e-letter DailyWealth about his favorite safe way to invest in this idea. You can read it here.
If you don't want to wait for a natural gas breakout, perhaps you'd be interested in a triple-digit gain in just a week...
Today, Jeff Clark recommended a company that is trading for less than the net cash on its books. Normally when you see this situation, the company is burning cash and will soon tap its balance sheet for survival. But Jeff's recommended play is producing a positive cash flow. It has the potential for a huge increase in earnings (global legislation changes could make this company's operations much more widespread). And the company already operates with a 75% operating margin.
This company first hit Jeff's radar in February. It's 25% cheaper now. And its chart is pointing toward a major breakout. Jeff expects his trade to return between 230% and 500%. A near-term, upcoming event will be the catalyst that shoots this stock to the moon. You may think triple-digit gains in such a short period of time are ridiculous. I assure you, they're a reality. So far this year, Jeff has closed five trades for triple-digit gains. He's closed many more for gains between 50% and 90%. Unlike most traders, Jeff produces his best returns when the markets are rocky. He is able to spot quick-profit opportunities from unusual divergences. To learn more about the Short Report and access Jeff's latest trade, click here...
In the August 18 Digest, we noted the famed hedge-fund manager Stanley Druckenmiller was closing his fund after his first down year in his 30-year career. We mused more hedge fund managers would follow suit as the global credit bubble deflates and it becomes harder to produce massive outperformance.
Last week, another major hedge-fund manager, one whose career was launched after one year of massive outperformance, is returning clients' funds. Paolo Pelligrini, the John Paulson henchman largely responsible for the fund's housing trade, is closing his hedge fund, PSQR Capital. He started the fund in April 2008. He opened it to outside investors in December 2009. The fund gained 40% and 61.6% in those years, respectively. So far in 2010, PSQR is down 11%. In his letter to investors, Pelligrini wrote, "While my views on global economies haven't changed, I've concluded that substantial additional work will be required to position the Fund to profit consistently from those views."
While this note supports our opinion, we do find it funny that hedge-fund managers aren't willing to perform "substantial additional work" for their eight-figure paydays. In truth, these managers just don't want their names associated with poor performance. In case markets become manageable again, they want to be able to raise huge funds quickly.
New highs: ATAC Resources (ATC.V), AuEx Ventures (XAU.TO), Seagate Technologies (STX), Western Digital (WDC).
In today's mailbag... explaining new highs again and more gushing over True Income. Any new topics to discuss? feedback@stansberryresearch.com.
"When you say a 'New High' for a stock you have shorted, does that means it is a high for the trade, i.e., the stock has hit a new low since the trade?" – Paid-up subscriber Dr. CTC
Goldsmith comment: Yes. Seagate and Western Digital, both shorts in Stansberry's Investment Advisory, are currently trading at 52-week lows. Because we're short, our position is at a new high.
"I have purchased and sold all my True Income bonds through ETrade and the only expense is $1 per bond. I just bought 10 of the August reco and paid $10. When I sold 10 Tribune bonds in April on Mikes recommendation I paid only $10 ($1 per bond). When I buy a bond I request a offer bid and I get the best of those offered. They have always been competitive." – Paid-up subscriber Terry H
"I love True Income. I have been investing in stocks/options since 2004. True Income has become my favorite newsletter since becoming an Alliance member (12% Letter and Extreme Value are close seconds). I have 7 different holdings. They consistently make money and appreciate in value. It is hard to invest in stocks when it seems so risky at this point. I think his recommendation for convertible bonds are an excellent hedge against deflation but would also convert to stocks should inflation set in. Keep up the good work – every month I set aside funds for your latest pick." – Paid-up subscriber Scott Martseller
Goldsmith comment: For all of the True Income lovers out there – and judging by recent mailbags, there are many – don't miss Mike's latest issue. Mike recommended a bond from a major electricity provider. Investing in this bond will pay you 10.8% in cash and 15.2% in total return each year. And the company has plenty of cash to pay its bills. Plus, this is a great way for you to gain exposure to natural gas, while collecting huge yields, as we discussed above. To sign up for True Income, click here...
Regards,
Sean Goldsmith
Managua, Nicaragua
August 25, 2010