How Rockefeller did it...

How Rockefeller did it... FT throws me a curveball... Suicidalmillionaires.org... Porter's solar short... European PMI down...

 I just put the finishing touches on the September issue of Extreme Value, due out tomorrow after market close. Inside is the story of a man who has started an immense wealth-creation revolution, right here on American soil.

I think men like him will become like John D. Rockefeller. The biggest fortune in U.S. history, Rockefeller's wealth has been estimated as high as $660 billion in today's dollars. He made it by ramping up production of petroleum products and lowering their cost.

At the turn of the 20th century, Rockefeller's Standard Oil increased production of refined oil from 500 barrels per day to 1,500 barrels per day. He simultaneously cut the price in half, from $0.06 a gallon to $0.03 per gallon. A threefold increase in production produced a 50% drop in price.

Most people think the only way to make money in natural resources is to speculate on higher prices brought on by inflation. But remember… stocks are pieces of a business. Counting on inflation to bail you out is no way to run a business.

My research partner, the intrepid Mike Barrett, and I have found a company making 50% returns on investment by producing natural gas... even though gas is selling at the horribly depressed price of around $4 per thousand cubic feet. The company's secret is the same as Rockefeller's.

The company has huge natural gas reserves, but its official reserve count is attributable to just 6% of its land holdings. More than half its land is in the most productive natural gas play in the country. I'm certain this will become a multibagger over the next several years.

If you want to access Extreme Value and read the whole story when it comes out tomorrow (after market close), click here.

 Just when I thought I had the financial press pegged, the Financial Times throws me a curveball with the headline "Better-than-feared U.S. data lift global equities"...

"Better than feared." I've grown accustomed to "worse than expected" and the perennial favorite, "better than expected." But "better than feared"? What does that even mean? I don't know...

Of course, the occasionally not-completely-stupid Financial Times is utterly out to lunch on this occasion. The S&P 500 was up a few basis points this morning, less than half a percent. It's down about 0.24% as I write this. These are tiny, totally meaningless, completely random movements that are well within the norm. These movements have no significance. If you spend any time thinking about what "moves the market"… like the CNBC talking heads want you to… you are a sucker.

Mathematical realities never stopped the financial press. Its job is to assign meaning to random price quotes. If you watch this stuff for anything but entertainment, don't be surprised if you have less money when you finally turn off the TV.

 If you want to see what a group of power-mongering maniacs looks like, go no further than www.patrioticmillionaires.org. These people support higher taxes on incomes more than $1 million. A bunch of them have signed their names in support of it.

If they want to write the government a bigger check, what's stopping them? Nothing. But that's not what they want. They're a bunch of overeducated hypocrites (like Michael Steinhardt and Nouriel Roubini) who think they know how to run your life better than you do. They think they have all the answers. And by God, they're going to shove them straight down your throat.

You're not a fellow citizen to them. You're more like a goose who's been force fed to fatten up his liver so they can cut it out and eat it as foie gras. Warren Buffett started this baloney. Again, if Buffett loves the government so much, he can write them as large a check as he'd like. No one is stopping him.

Raising taxes on income is a great way to generate LESS tax revenue on those incomes, not more. (Of course, it's no great loss if the government has to shut down a bunch of the awful things it does.) This is destined to backfire and will likely lead us into recession. Maybe then we'll stop listening to people who think they're smarter than us… and start acting like we have spines and value our long-lost self reliance.

 We never encourage government intervention in private industry… especially when that industry is as ludicrous as solar power. Solar power – and its fellow "green" energy, ethanol – simply are not efficient forms of energy… regardless of how much cash the government throws at them. We've long been bearish on solar stocks for that very reason…

Holding a short position in First Solar since we wrote the above piece would have produced excellent returns...

 However, First Solar – the bellwether in the solar industry – has performed better than its competitors. Consider Solyndra, a California-based rooftop solar panel manufacturer founded in 2005. Two years ago, Solyndra became a darling of the Obama administration… He granted the firm $535 million in low-cost loan guarantees from the Department of Energy. (A major Solyndra investor was also a major campaign contributor in Obama's 2008 race.)

The government loan was supposed to create more than 1,000 jobs. The president visited the facility last May and said, "It is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly, the best workers in the world. And you guys all represent that."

But yesterday, when Solyndra employees showed up for work, they were greeted by security guards with yellow envelopes (which contained information on how to collect their last paycheck). The company is declaring bankruptcy.

 New 52-week highs (as of 8/31/11): Keyera Corp. (KEY-UN.TO), Coca-Cola (KO), GenMark Diagnostics (GNMK).

 Lots of good wine recommendations in today's mailbag. Send us your feedback at feedback@stansberryresearch.com.

 "I received an e-mail a time back asking if I had any feedback regarding to any benefit I had in becoming a lifetime subscriber with Stansberry Research. Here's your feedback:

"I have been involved in investing for several years, most of this being taking swing trade positions on stocks. Options had always been a nightmare – always getting cleaned out every time I tried. I've learned from other traders, but nothing ever worked or clicked.

"After learning what your contributors had to say about options, how to be successful trading them, and reading up on recommended references, it all seem to come together. I took the big test starting August 4, 2011. I heard the market was crashing, took the afternoon off from work, and put the suggested shorting strategies to work – just several small trades with small amounts risked on each trade.

"The result? Taking net profits of more than $11,000, when everyone else I know of was panicking. This more than made up for the lifetime subscription price. But it doesn't end there...

"Reading the suggested sectors to invest in S&A Digest, the Short Report, and the Resource Report, I've had additional success with the gold uptrend and the metal ore mines.

"The information, research, and daily reads have been worth every penny. August has been my best month trading ever, to date. Thanks again!" – Paid-up subscriber Ted Oplinger

 "I am a big fan of both you and Porter and I suggest a 2005 Colgin Napa Valley Red IX Estate." – Paid-up subscriber Fred Paciocco

 "As sure as you are, go for the 1982 Chateau Latour Pauillac. But $500 won't cover it. And save just one glass for me." – Paid-up subscriber H. Richard Penn

 "I'm on the Harlan mailing list and just got offered the Cabernet for $500 a bottle... up front of course...

"I'm on your side on the bet. I picked up 500 BAC 2 days BEFORE Warren's move at $6.99. I think despite their problems, in this economy they're TBTF, and will be saved – and I'm looking to cash out at least some of my holdings at around $10 and then just hang on for the ride..." – Paid-up subscriber George Ronay

Goldsmith comment: Thanks, George. I'm also on the mailing list for the Harlan Estate winery. In fact, I'll be tasting wines at the winery next week… The Atlas 400 is heading to Napa for a long weekend. The people at Harlan said this is the first time they've opened their facilities for an outside group. We're very excited.

 "I have done well shorting Open Table, Salesforce, and Netflix this year. I have small gains from shorting Brunswick, GE, and Capital One. I short mostly by selling naked call options. I did get stock of BC and CRM assigned short to me when they closed above the strike price. It's been profitable for me, but most these stocks ran up significantly in price after being recommended by S&A as shorts. It took lots of guts (or stupidity) on my part to stay with these positions and not close them for losses." – Paid-up subscriber Paul Cunningham

Ferris comment: Congratulations. I doubt it was stupidity. Shorting is hard. Without guts, it's probably impossible to make money at it. That's true of going long in the stock market, too. The only way to get rich in stocks is not getting scared out of them. If you're not patient, you'll never get rich in stocks.

Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and Baltimore, Maryland

September 1, 2011