Tue, May 26, 2015|Justin Brill

Porter's big energy bet...

Porter's big energy bet... Seven-year highs for China... More big news on China... Steve was right again... How Big Data will change your everyday life...

One of Porter's big energy bets continues to hit new highs...

In the August 2013 issue of Stansberry's Investment Advisory, Porter and his research team recommended shares of Energy Transfer Equity (ETE) to profit from America's new oil boom. At the time, Porter called it "without a doubt the most important investing opportunity of our lives."

He and his team believe investing in the explosive growth of the domestic energy sector – one of thebiggest trends in the world today – will lead to huge gains over the next several decades.

Contrary to popular opinion, they said the ongoing boom isn't just one revolution in the energy industry... it's three. It's a combination of increasing natural gas production, the shift to shale-oil production, and a developing market for U.S. energy surpluses. And Porter and his team said ETE was an ideal way to profit from this third revolution.

Stansberry's Investment Advisory research analyst Dave Lashmet reviewed the bullish case for ETE over the phone with us this afternoon...

Some people, like Dan Ferris, like to own pipelines. But we prefer owning the general partner, like ETE. What we like about the general partner is that any excess cash goes to them. ETE bought Sunoco to take all of the propane from the Marcellus Shale in Pennsylvania and ship it through the East Coast. It bought a giant port in Philadelphia to become an energy exporter.

If we continue to find oil in the U.S., we will continue to export it. Fundamentally, once you have a right of way for pipelines, you can set multiple ones up. So you can move oil to the coast and ship it out. The price difference between the domestic oil glut and international oil prices goes straight to the general partner. ETE knows this and has actively been building a system for a few years now. It bought Sunoco to build its export business, and that's coming to fruition now.

As Dave explained, owning the general partner gives investors a cut of the pipeline fee and any upside from any trading activity...

Since the U.S. has by far the most active oilfields in the world – which nearly doubled production from 2008 to today – we're in a localized glut that has to get out. The people who take it out – like ETE – make money.

If ETE is hitting new highs, it's because the U.S. is going to export more and more oil. It's a hedged bet on exporting oil. ETE gets part of the fee money regardless and keeps the upside of any exports.

Their thesis has been spot-on so far. Despite the recent decline in oil prices, shares were up 121% in less than two years, as of Friday's close.

Chinese stocks are also hitting important new highs...

China's CSI 300 Index – representing the 300 largest stocks from both the Shanghai and Shenzhen stock exchanges – rallied 3% on Monday to close above 5,000 for the first time since 2008.

Regular Digest readers know Chinese stocks have been soaring. This latest move was credited to a big announcement over the weekend...

In the December 15 Digest, we reported that China's central bank was rolling out a "Stock Connect" program to allow Chinese citizens to invest in foreign markets by buying shares in Hong Kong. The program also allows foreigners to buy Chinese stocks directly on Chinese exchanges for the first time.

In March, the Chinese government announced it would also allow Shanghai mutual funds to buy individual Hong Kong stocks.

And last Friday, the government went even further...

Regulators have now approved "cross-border sales" of mutual funds. Effective July 1, mutual funds based in Hong Kong will be open for sale in China, and vice versa. According to Reuters, the initial "quota" will be a total of 600 billion yuan – or about $97 billion – split evenly between both countries.

The "mutual-fund recognition program" will further open Chinese markets to foreign investment, particularly large institutional investors who haven't been able to easily invest in China before.

As we've highlighted several times recently, our colleague Steve Sjuggerud predicted the rally in Chinese stocks. But Steve is still incredibly bullish on China... particularly the H-shares, shares of Chinese companies listed in Hong Kong. Steve explained why in the April 21 DailyWealth...

Chinese stocks are up more than 100% in the last 12 months. (No, I am not kidding.) Meanwhile, the main Hong Kong stock market index is up less than 20% in the last 12 months.

The thing is, many of the same companies trade on both stock exchanges. (Yes, they are the same, identical businesses trading on two different stock markets.)

What has happened – as you can probably guess – is the shares listed in China have become dramatically more expensive than the shares listed in Hong Kong. To me, this is the biggest anomaly in finance today...

In a private e-mail this morning, True Wealth research analyst Brett Eversole sent us his thoughts on the news...

This is just one more step toward a more open Chinese financial system. It's another means for money to flow between mainland China and Hong Kong. And it's another step closer to the world's funds being able to flow in and out of China.

China has taken great strides over the past year to open up its markets. The Shanghai-Hong Kong Stock Connect opened last year. And later this year, the Shenzhen-Hong Kong Stock Connect will open as well.

China needs the world to believe it's legitimate. As we've seen over the past year, when China wants its stock market to go high, it goes higher. Further opening markets should continue to push Chinese stocks higher from here. More important, freer flows between Hong Kong and China should continue to lower the valuation premium between Hong Kong-listed Chinese stocks – the H-shares – and mainland-listed Chinese stocks.

This is the real opportunity we see based on today's news. The exact same companies still trade for a 29% premium in China versus their Hong Kong listings. As money flows easier and easier between Hong Kong and China, investors WILL remove that premium. And we expect the Hong Kong-listed H-shares to be the beneficiary. They're the best place to put new money to work in China today.

Reports this morning suggest yet another of Steve's big China predictions could be coming true as well. As we mentioned in the April 27 Digest, we think China has bigger plans than just boosting its stock market...

It's no secret that China has been challenging the U.S. for dominance in the global economic landscape. The country is buying U.S. real estate, businesses, stockpiling Treasurys... and, according to Bloomberg, it could be buying huge amounts of gold to back its currency (the yuan). And that could mean China will challenge the U.S. dollar's status as the world's reserve currency...

China is pushing to add the yuan to the International Monetary Fund's currency basket, known as the "Special Drawing Right." It currently includes only the U.S. dollar, euro, yen, and British pound. This would greatly increase the amount of yuan used in global trade.

Today, that prospect moved one step closer to reality...

In a statement this morning, the IMF said the yuan can no longer be considered "undervalued." From Bloomberg...

The International Monetary Fund dropped a long-held view that the yuan was undervalued, contradicting the U.S. assessment and strengthening China's case for the currency to win reserve status at the lender in a coming review.

"Appreciation over the past year has brought the exchange rate to a level that is no longer undervalued," the IMF's mission to China said in a statement Tuesday...

"The IMF remarks signal that the yuan has matured to a stage that it could be held as a reserve currency," said Banny Lam, co-head of research at Agricultural Bank of China International Securities Co. in Hong Kong...

Steve predicts a major announcement about the yuan could be coming as early as this October... and he has prepared an entire presentation detailing what China is planning and what it could mean for you. If you haven't seen it yet, you can watch it for free right here.

One last note... As we explained last Wednesday, we just launched a brand-new service called Professional Speculator. This week, we'll be featuring commentary from editor Paul Mampilly at the bottom of each Digest. We're leading off with his thoughts on Big Data. We hope you enjoy.

New 52-week highs (as of 5/22/2015): Deutsche X-trackers Harvest China A-Shares Fund (ASHR), WisdomTree Japan SmallCap Dividend Fund (DFJ), WisdomTree Japan Hedged Equity Fund (DXJ), Energy Transfer Equity (ETE), KraneShares E China Fund Commercial Paper Fund (KCNY), and ProShares Ultra Technology Fund (ROM).

In the mailbag, a reader questions Steve Sjuggerud's advice. Send your questions and comments to feedback@stansberryresearch.com.

"True Wealth is saying to buy at 52 week highs instead of buying at a low price. This does not jive with previous newsletters saying traders get hurt because they buy at a high (when prices are going up) and sell at a low. I know this does not make sense, but could True Wealth be trying to say that the buying should not stop because of a market high? Could the important thing to consider be the point at which to sell using dynamic trailing stops?" – Paid-up subscriber Dave Thompson

Brill comment: Steve Sjuggerud wrote a classic DailyWealth essay on this topic. You can read it for free right here. And last week, he brought up a similar topic in his True Wealth Systems Market Extremes...

One of the most common – and costly – investor mistakes I see is bottom fishing... or trying to buy at the bottom. Everyone wants to buy at the exact bottom. It makes you look brilliant. But buying after stocks have been falling is a losing strategy. In fact, buying at highs leads to much better gains.

That might surprise you, but it's true. Steve looked at data over the past 50 years to determine whether buying at 52-week highs or 52-week lows leads to bigger future returns...

The results might not sit well with you. They go against what most folks expect. But they're true.

It turns out buying at 52-week highs leads to dramatically better returns over the next year than buying at 52-week lows. Stocks have returned 6.4% a year (excluding dividends) over the last 50 years. But if you had bought after a 52-week high and held for a year, your return improved to 8%. Conversely, buying after a 52-week low and holding for a year led to much lower gains of just 5.8%.

The returns are similar over just about any long-term testing period. The simple fact is buying at 52-week highs leads to better returns than buying at 52-week lows. This goes against what many investors believe. It shows that trying to call bottoms is a bad idea. It also shows that trends matter... and we shouldn't fight them.

Regards,

Justin Brill
Baltimore, Maryland
May 26, 2015

How Big Data Will Change Your Everyday Life

By Paul Mampilly, editor, Professional Speculator

Imagine walking into a restaurant and the waiter already knows what you're going to order. Walking into a Starbucks and your pumpkin-spice latte is waiting for you already. Shopping for a new pair of pants online and the website shows you only the items in your size with the colors and styles you like.

The world I'm describing is custom-made for you. And it isn't science fiction. It's an emerging trend called "Big Data," which allows for the storage of incredible amounts of data on computers... like what songs you're listening to, what stores you shop in, and more.

Over time, this huge amount of data can accurately predict behavior in things like what consumers are interested in buying. And when you can predict these things, you can anticipate their needs before they even know them.

Here's how it works: Information scientists create programs and algorithms to crawl through data around the clock with the intention of figuring out your preferences. Over time – and with more data – these programs and algorithms learn more about you and what you like. One day soon, you'll be able to automate your decisions... including what to eat and drink, what clothes to wear, and what you'll do on the weekend.

We can see early signs of Big Data already. When you browse the Internet, you see ads tailored to things you have searched for or purchased. Imagine that type of experience in the world around us... Soon, your decisions will be made for you. That's the future I envision. And if I'm right, it means certain companies will be making billions of dollars off it.

Companies investing heavily in Big Data include well-known blue-chip companies like IBM, which has a product called Watson. Watson is a computer that uses Big Data to answer questions. IBM has already signed deals to integrate Watson with consumer-products icon Apple's new smart watch.

One industry set to benefit greatly from the growth of Big Data is health care. In 2013, the U.S. spent $2.9 trillion on health care... nearly $10,000 per person. Research suggests that as much as one-third of that spending is wasteful and, worse, potentially harmful to patients. Sure enough, IBM is collaborating with health care giant Johnson & Johnson's knee- and hip-implant division. And IBM is working with Medtronic to connect heart devices, diabetes pumps, and other medical devices.

You could buy shares of IBM to gain exposure to this long-term megatrend. But I prefer the idea of speculating through smaller companies like Splunk, Tableau Software, Infoblox, and Neustar, who are working to create cutting-edge applications using Big Data.

And my Professional Speculator subscribers have already invested in the future of Big Data and health care. I recommended a small company that's working to eliminate wasteful, unnecessary, and dangerous medical expenses by parsing through the huge amounts of medical data we're collecting every day.

Editor's note: "Big Data" is just one of the important technology trends that could revolutionize our day-to-day lives over the next 10 years... and make a fortune for early investors. Paul will be covering them all in his Professional Speculator service, and no one is more qualified to do so...

Since 2008, Paul has more than quadrupled his net worth through trades like these... enough to retire at age 45... all with a simple strategy he has developed. And now, for the first time ever, he has joined Stansberry Research to show subscribers how it works.

For a limited time, we're offering a special charter offer... You can receive the Professional Speculator for LIFE – all for the cost of a normal one-year subscription today. Plus, you can try this service completely RISK-FREE for the next SIX months. Get all the details right here.