Sending an analyst into the heart of a political crisis... Want a free dinner in Thailand?... China and Russia sign massive natural gas deal... Circumventing the U.S. dollar... How to join us in Dallas, from your home...
Russia signed a historical deal with China today to provide the country with natural gas... And S&A Global Contrarian editor Kim Iskyan shares his thoughts on the $400 billion transaction. But before we get to that... we have a favor to ask...
Next week, Kim is traveling to another country that has been stealing headlines recently... and for all the wrong reasons – Thailand. The military just declared martial law, but says it's not a coup. After months of turmoil in the streets and the ousting of the government, the military – which has overthrown the government about a dozen times since 1932 – is losing patience. Sentiment is bad, and stock market valuations are dropping... So it's looking like it might be a great contrarian setup. Just the sort of thing we look for in the S&A Global Contrarian.
Kim's hoping to find some contacts who can introduce him to the country. If you know anyone Kim should meet while he's in Bangkok, he'd love to hear from you. Don't worry... he'll stay away from politics... since, according to Bloomberg, "the military warned that people making comments to the media that could incite violence risk prosecution, and [it] threatened to shut down social-media operators that don't curb 'provocative' content."
Kim is eager to meet up with anyone interested in talking about Thailand with him... And he's happy to buy coffee, lunch, dinner, or beer in Bangkok next week. Drop us a line at feedback@stansberryresearch.com. Please include "Thailand" in the subject line.
Now, on to Russia and China...
After more than a decade of negotiations, China and Russia signed a deal for Russian state-controlled energy giant Gazprom to sell gas to China. According to Bloomberg, the $400 billion deal calls for Russia to supply China with 38 billion cubic meters of gas over a 30-year period. The supply should begin flowing in about five years, once the required pipeline infrastructure is built.
The deal is a game changer... but not for the reasons you might think. Gazprom will make money on the deal, but the rate of return on its investment won't change much for the company. The price of the gas that Gazprom will sell China has been the sticking point for years.
The Chinese are notoriously stingy negotiators, Kim told us in an e-mail. But he says it's interesting to note Russian President Vladimir Putin didn't sign the deal while he was in Beijing. Rather, the head of Gazprom signed the deal only after Putin left town. Kim speculates that negotiations went on to the last minute, and Gazprom ended up giving more than it wanted.
Putin absolutely had to get this deal done, Kim says. Russia has looked increasingly vulnerable and isolated as the U.S. and the European Union have cranked up sanctions over its incursions into Ukraine. Putin's domestic popularity has shot through the roof, but the Russian economy is teetering on the edge of recession. The cash involved in the transaction will provide a short-term boost to the economy.
More important, though, Kim says "Russia [is] pivoting toward Asia and showing that it can do fine on its own, without those meddling Westerners." But this approach requires Russia to expand its relations with Asia (and China in particular). The Gazprom deal shows that it can.
If Putin hadn't been able to deliver a deal — now, or else during the upcoming St. Petersburg Economic Forum later this week (a kind of Russian answer to the Davos meeting of global business leaders every winter) – he would have been left with a lot of egg on his face.
"For now, Putin has bought himself all kinds of political capital," Kim said. "But he's only increasing the reliance of the Russian economy on natural resources... which over the long term, won't improve Russia's growth rate."
For years, the Kremlin has tried to promote economic diversification, so that the economy doesn't live and die by the commodities cycle, Kim said. The Russian economy collapsed by 9% in 2009 in the global economic crisis... more than any other major economy.
So is it time to buy Gazprom now? "Buy the rumor, sell the news" would make more sense, Kim said. The shares are up 34% since mid-March lows. In financial terms, the deal doesn't move the needle for Gazprom. And it's probably a matter of weeks before Gazprom is going to cut off supplies to Ukraine, which won't help its bottom line. Yes, Gazprom shares are cheap, at a price-to-earnings ratio of around 3. But I have to wonder where the catalyst is... cheap can stay cheap forever, after all.
But one important aspect of the Russia/China agreement is lying just below the surface... and it's a trend we've been covering for years – the declining relevance of the U.S. dollar...
Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement regarding a new stage of comprehensive partnership and strategic cooperation signed during high-level talks in Shanghai on Tuesday.
"The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments, and loan services," the statement said.
Russian President Vladimir Putin arrived in China on Tuesday for high-level talks with Chinese President Xi Jinping. They are expected to sign a large package of documents, including bilateral, intergovernmental, and corporate agreements, aimed at cementing Russian-Chinese relations.
The decision to switch to the national currencies, thus reducing dependence on the U.S. dollar, was first announced in 2010 by then-Russian Prime Minister Vladimir Putin and China's then-Premier Wen Jiabao. The announcement was followed by a deal struck by the central banks of the two countries that allowed bilateral trade in the ruble and renminbi, as well as in freely convertible currency.
The China's renminbi (also called the "yuan") currently makes up around 9% of the global market for trade settlement. But that's up from less than 2% in 2012. We expect to see more deals like these in the future.
In a recent interview with Phase 1 editor Frank Curzio on his S&A Investor Radio podcast, natural resource expert Rick Rule explained a simple philosophy for investing in commodities...
Rick said you look for commodities where the price is less than the cost of production. As long as the world needs that commodity to live, the price will have to go up eventually. The catch is... you can't know exactly when the price will increase...
Right now, Rick says water is one of the most undervalued commodities in the market. From the interview:
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And remember... water is used for more than just agriculture and taking showers...
The mining industry uses a huge amount of water to retrieve minerals from the ground...
Two years ago, Freeport-McMoRan, one of the world's largest copper miners, bought 280 acres of ranchland in the Arizona desert for $1.3 million... All Freeport wanted was the water rights.
As the mining companies move into more remote and arid land, their need for water increases.
Moody's estimates mining companies spent $12 billion on water management – which includes pipelines and treatment facilities – in 2013. That's three times what they spent in 2009.
Just in the U.S., mining companies consume around 4 billion gallons of water a day – about the same as households. That compares with 18.2 billion gallons for industrial uses and 128 billion gallons for agriculture, according to the U.S. Geological Survey.
From the Wall Street Journal:
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"Water is a critical issue in places like Northern Chile and Southern Peru, and here in New Mexico and Arizona," Freeport-McMoRan Chief Executive Officer Richard Adkerson told the Journal.
Also, as the big miners stretch for more production, the quality of the ore is lower... meaning it takes more water to unearth the same amount of minerals.
"If you extract 100,000 tons of raw copper with 0.2% instead of 2% grade copper, you need 10 times as much rock and 10 times as much water," Paul Gait, an analyst at the financial research firm Sanford C. Bernstein & Co., told the Journal. "Water is one of the biggest things mining companies have to worry about, and it's going to get worse."
Rick is one of the headline speakers at our natural resource-focused Stansberry Society event in Dallas on May 31... He's going to discuss some of the best ways to profit from water and other mispriced commodities in the market today.
But Rick is only one of the brilliant resource minds speaking at the event... Texas oil billionaire T. Boone Pickens is our keynote speaker. He'll be discussing the energy landscape of the United States... and what the shale boom means for our future. We also have Porter Stansberry, S&A Resource Report editor Matt Badiali – and many more.
Almost 600 people have bought tickets to attend. It's too late to buy tickets for the event. But you can still watch the entire event live from your own home.
We've hired a world-class production team to film and live-stream every presentation... So, you can get all the same valuable information, great stock picks, and other "in the room" information as everyone else.
And if you sign up to stream our Dallas event, we'll also let you watch the other events we're hosting this year in Los Angeles and Nashville.
You can learn more about the natural resources conference and how you can access the event here...
New 52-week highs (as of 5/20/14): Apple (AAPL), AMH (AMH), Market Vectors India Small Cap Fund (SCIF), Sprott Physical Platinum and Palladium (SPPP), and Targa Resources (TRGP).
A note of praise for DailyWealth Trader editor Amber Lee Mason in today's mailbag... Have you traded along with Amber? How have you done? Let us know here... feedback@stansberryresearch.com.
"Amber, thanks for writing this... One of the things that I see in my own portfolio is that over the last couple of years I have made 13% not including dividends. I am guessing that thanks to all that I have learned from the folks at Stansberry I am in the neighborhood of 20%.
"As for newsletters... I read and read and read. Thanks to you all I have learned so much about all of the things that are talked about in the letters so that I don't make stupid decisions. Thanks to all of you for making me a successful investor." – Paid-up subscriber Jeff Spranger
Regards,
Sean Goldsmith
May 21, 2014
Three income-producing assets Doc Eifrig likes today...
In today's Digest Premium, Retirement Millionaire editor Dr. David "Doc" Eifrig describes three different income-generating assets he likes in today's market.
Plus, he shares one he's personally looking to purchase...
To subscribe to Digest Premium and access today's analysis, click here.
Three income-producing assets Doc Eifrig likes today...
Right now, I (Doc Eifrig) think it's important to put your money into assets that have really secure income streams...
For example, I'm partnering with the guy that grows the grapes for my wine to purchase some farmland in Sonoma. In general, I think farmland still makes sense today... as long as you're not buying land in Iowa and other parts of the country where prices have gone through the roof. There's still relatively cheap farmland all over the U.S., Canada, and other foreign countries.
With farmland, you have a cheap, collateralized asset... It has a yield. And people have to keep eating. Plus, there's getting to be less and less farmland available.
I drive between Sonoma and Napa all the time... And you can see these old ranches that had cattle 10 or 12 years ago. Now, there are grapevines. So there's less space for cattle and more demand for wine.
I think rental real estate is also good... as long as you get tenants you trust. And you should be close by to manage the property. I personally find it time consuming. I have a rental property in Augusta, Georgia. It's hard to manage from a distance. If you can be a local landlord in your neighborhood and can still buy some cheap homes, it can be a good way to generate income.
I was flipping through real-estate website Trulia the other night and there are still lots of foreclosures popping up. It would be interesting to pick up some foreclosures in your neighborhood.
Other than that, I still like medium-duration, less-levered municipal-bond funds. Munis basically don't really default. Even during the worst times in history, not many of them defaulted. Plus, you're collecting tax-free income, which is a huge benefit.
And if you buy a closed-end fund, you have much less risk for price volatility... The managers of a closed-end fund don't have to buy and sell assets based on how many people are coming in and out of the fund, like they do with open-ended funds.
– Doc Eifrig
Three income-producing assets Doc Eifrig likes today...
In today's Digest Premium, Retirement Millionaire editor Dr. David "Doc" Eifrig describes three different income-generating assets he likes in today's market.
Plus, he shares one he's personally looking to purchase...
To continue reading, scroll down or click here.