Porter's latest thoughts on oil... An important notice about your retirement account... A flood of reader feedback...
Regular Digest readers know we've been keeping a close eye on the oil markets. This is for a couple big reasons.
First, the ongoing shale-oil and gas boom is one of the most important trends in the world today...
Porter was among the first analysts to predict the boom, years before the mainstream media caught on. And he was also the first to predict the incredible impact it would have on the U.S. economy and the world. As he reminded readers in his "critical oil update" earlier this year...
You might recall back in 2011 and 2012 when we began predicting this oil boom and the coming oil glut. I famously lost a bet that oil would be trading for less than $60 a barrel by the end of 2013. I was just a little early.
Meanwhile, back then, no one thought it was possible that oil would sell for $40 a barrel. But I kept saying it was inevitable. Now, I'm wondering why oil hasn't broken $30 per barrel yet. It will.
What has happened over the last five years in the U.S. oil patch is the most important economic event since the Bretton Woods monetary system failed in 1971 and the U.S. left the gold standard. And unlike the collapse of Bretton Woods, this economic revolution is good news for America, better than anyone can yet even imagine.
This boom will ultimately be great news for the U.S. economy... And investors on the right side of this trend could make a fortune.
But it has also created some big short-term problems, or as Porter put it, "there's going to be a little turmoil first on the way to prosperity"...
In short, a lot of the Federal Reserve's "easy money" over the past few years flowed into the oil industry. As a result, oil production in the U.S. soared. But many companies in the industry racked up unsustainable levels of debt in the process... much of it through the high-yield, or "junk," bond market.
Naturally, soaring production led to a huge decline in oil prices. This has created big problems for many oil companies and caused stress in the corporate-bond market. And these problems are playing a significant role in the recent market decline. Porter explained the situation in the September 11 Digest...
Think of investors like zebras. They all tend to run together in the same way at the same time. They stay with the herd. Like zebras, investors never change their stripes. How many times have you made the exact same investment mistakes? If you're honest, the answer is probably again and again and again.
But the way investors are most like zebras is the way investors seem to believe the lions aren't interested in eating them. After lions come out and grab a few zebras, the other zebras will stand off just a few yards away. They'll sit there and watch the lions eat their friends... or their family. There's nothing they can do about it...
The "lions" in the current stock market correction have been the oil industry, the ongoing bear market in emerging-market stocks, and falling prices of speculative corporate debt. These downward trends are powerful. The shale-fracking fund (FRAK) is down almost 50% in the last year. High-yield bonds are down almost 10% over the last year – a massive move for bonds. Emerging-market stocks are down nearly 25% over the last year. These "lions" have, and will continue to have, a major influence on the U.S. stock market.
Porter explained that as long as these problems continue, he'll remain concerned about U.S. stocks...
At the very least, before I become bullish on U.S. stocks, I want to see these "lions" – emerging-market stocks, U.S. oil companies, U.S. transports, and the high-yield corporate-bond market – stabilize. As long as these critical pieces of the global economy remain in significant downtrends, there's no way U.S. stocks can sustain a rebound.
Unfortunately, the latest news from the oil industry shows little sign of improvement. Porter and the Stansberry's Investment Advisory team updated readers on their latest thoughts in the Stansberry Data Global Oil Value Monitor last week...
Investment bank Goldman Sachs lowered its 2016 forecasted price for West Texas Intermediate (WTI) crude oil to $45 a barrel. That's down from the company's May estimate of $57. It also lowered its forecast for Brent crude oil (the international benchmark) from $62 a barrel to around $49. In its report, Goldman said it now thinks the price of Brent could drop to as low as $20 per barrel...
And Goldman isn't the only one growing bearish... Other investment banks have also brought down their one- and two-year estimates for oil prices. Even the U.S. Energy Information Administration (EIA) predicted in a report last week that WTI could fall to as low as $32 per barrel. It had previously called for prices to return to $60-$70 per barrel by the end of next year. Goldman Sachs is calling this new reality of sustained lower prices a "new oil order."
These stark forecasts shouldn't surprise you. Since March, we've been warning that oil prices would fall to less than $40 a barrel and that oil selling for less than $30 was on the way.
As we've discussed, the large debt loads at many of these companies mean they have no choice but to keep "pumping" oil... meaning prices are unlikely to rise anytime soon.
For Porter and his team, the bottom line is clear...
The worst isn't over... The sector is facing a huge shakeout. The excessive bad debts will take a while to wash out.
It's still far too early to "bargain shop" for upstream energy exploration and production (E&P) companies today. Right now, the trend is still down. But it won't last forever. Eventually, the turmoil will end and lead the way to prosperity. We'll let you know when we think the tide has turned.
Switching gears, we have an important notice for anyone with a 401(k) or IRA account. Our colleague Dr. David "Doc" Eifrig has the details below...
President Obama and the administration (read: government) are once again trying to treat you and me like children...
The Department of Labor has proposed a new rule that would change how brokers and financial firms deal with IRAs and other retirement plans.
The rule is supposed to reduce fees and conflicts of interest between brokers and investors. That's a good thing. But the rule as written has a fatal flaw. And when has the government ever made anything cheaper and easier to do... or reduced conflicts of interest?
Here's the thing... if passed, this rule will restrict the trading of options in IRA accounts.
Many of you sell covered calls in IRA accounts for income and capital gains. Some have even used it as a way to create portfolio protection. If this rule passes, that could end immediately.
Many people use options to increase leverage and make big bets. But in a paternalistic attempt to protect people from themselves, the Department of Labor may take away our ability to use options correctly to actually decrease our portfolio risk.
That's patently unfair. You deserve every retirement savings tool at your disposal.
The Department of Labor is accepting comments on this rule... but only until September 24.
Please take the time to submit your comments to the Department of Labor. Write them a short note.
I'm dead serious... We need your help, and we've included instructions on how to do it below.
Please tell the bureaucrats how you've taken the time to learn proper options trading. Tell them about how it has grown your retirement account. And explain how some option trades reduce risk, rather than increase it.
Taking five minutes now could result in a major difference in your retirement account. Here's how you can submit your comments...
The government accepts comments at www.regulations.gov.
You can also go straight to this particular rule change by clicking this link. Then you can click "Comment Now" in the top right and enter your opinion.
If you want to protect your right, and the right of others, to trade options in a retirement account... take a few minutes to do this today. The comment period ends tomorrow, so don't put it off.
Please do it right now and fight for your freedom to use the tools that Wall Street gets to use.
P.S. You can also send an e-mail directly to e-ORI@dol.gov. Be sure to include "RIN 1210 – AB32" in the subject line.
New 52-week highs (as of 9/22/15): none.
Yesterday's mailbag produced a flood of subscriber support... and several suggestions to improve our marketing videos. Send your thoughts to feedback@stansberryresearch.com. As always, we can't respond to every e-mail, but we read them all...
"Quite the letter from Francis L. Is it for real? Is it really an example of, "You can't make this stuff up"? If so, Francis L's life, isolated out there in that angry place, must be lonely and fearful.
"On the other hand, it does provide a great platform from which to espouse the Bs and As (benefits and advantages) of subscribing to Stansberry Research. I appreciate your 'cool' when countering someone's comments; something I find difficult, but I've read many of your verbal rebuttals over the years, and you always maintain your decorum, keep your focus, address the issues, and turn it into a marketing piece. You're the best!" – Paid-up subscriber Jim Geiger
"The only business that does not advertise its goods and services is one that is going out of business. Don't pay much attention to your detractors, you have a large group of 'gripers' and today is your day to be their target. Most people like this will move on to another, fresher target tomorrow and leave you in peace to do what you do best. Keep up the good work!" – Paid-up subscriber Jim Tadlock
"I just wanted to comment on Porter's response to the angry customer. Well-done, Porter. I like that you kept your cool, were rational, factual, and not egotistical... as you know you can sometimes be a bit sarcastic. You have a bit of that in you, but that's ok, if tempered with a bit of humility. I respect you and appreciate what you and your team have done for the ordinary investor like myself. Please keep up the good work. Thanks." – Paid-up subscriber Bill Islava
"I don't think you are greedy, and I appreciate your making a lot of information available to older, non-business school grads like myself. Now some of the advice you sell is expensive. However, we are not forced to buy anything, and we should all be intelligent enough to decide whether or not paying a high price for whatever would be beneficial to us personally.
"BUT, I will certainly admit that most of your advertising really is way, way too long winded. Whether I have to read it or listen to it doesn't matter to me, but the reasoning is so repetitive and drawn out before your speaker or writer get to the point, that I often just give up on ever getting to the end of a presentation. I am often asking myself do these people not realize that my time is valuable too. I think you would sell far more if you would limit each main point to just three examples and then move on to the next main point. I dare you to try it. I am just old Bill, trying to learn all I can without falling asleep. Have a good day." – Paid-up subscriber Bill B.
Brill comment: We're happy to see most of our readers support our marketing efforts. But we also received several e-mails with suggestions like this one...
Believe it or not, we have tried much shorter marketing formats... and just about every other idea you could think of. And we've tested them all. We test everything. And guess what we've found? Our current marketing format performs far better than any other we've tried.
As Porter said yesterday, we're proud of our research. We believe it ranks among the best available anywhere, at any price. Sure, some of our services are expensive and tailored for more experienced investors. But we also offer several low-priced, high-quality publications – like our flagship Stansberry's Investment Advisory, Doc Eifrig's Retirement Millionaire, and Steve Sjuggerud's True Wealth – that are affordable and valuable for every investor. And we believe folks who subscribe and read our research will agree.
So while we can't explain why our marketing works – and we know some folks don't like it – we know it does work. And we make no apologies for it. It means we can reach more folks... and help more individual investors take control of their financial futures.
Regards,
Justin Brill
Baltimore, Maryland
September 23, 2015
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