S&A editor Braden Copeland is attending Enercom's 15th Annual Oil & Gas Conference. Braden reports a packed house, with almost 2,000 in attendance. He says:
It's standing room only and 93 companies are presenting over four days. Fifteen years ago, there were barely 10 companies and only 83 people. My guess is there will be well over 2,000 next year, and they'll have to move it to a much larger facility.
Normally, we take a crowded conference as a sign of the top. But with gas prices depressed and capacity stretched to its limits, maybe this is a sign of more bullish times to come in the natural gas sector. Braden reports:
One producer reported yesterday it is having surprising trouble getting water-fracturing crews in the Eagle Ford shale area. Finally, they got slots with a services company for two a month – hardly enough to satisfy the need. And who knows what they're paying? It's worth it, though. The growth curve for gas use in the U.S. is setting up to get a lot steeper. Servicers are already raking it in, especially those with special technologies that maximize well output.
Our oil and gas guy, Matt Badiali, is also excited about natural gas. Matt has thoroughly researched the "fraccing" technology Braden was talking about. Matt has found the companies that have mastered the technology and are most likely to make a fortune from it. To profit from the coming boom in the U.S. natural gas industry, click here.
There's another boom quietly in progress right now, one I never would have expected. The Journal of Commerce reports, “surging cargo volume on key routes from Asia to North America and Europe. Charter rates for ships that can carry 3,500 20-foot containers have more than tripled since the beginning of the year…"
The average spot market freight rate from Hong Kong to Los Angeles hit rock bottom at $871 per FEU (40-foot equivalents, a measure of container shipping capacity) in July/August 2009. On August 2, 2010, the rate hit a record high of $2,838 per FEU.
The Harpex Shipping Index of North Atlantic container shipping rates has experienced the same dramatic rebound. The Baltic Dry Index of global commodity shipping rates is up 40% since July. More of everything is moving around the globe than it was a year ago.
Perhaps goosing the monetary base of the world's reserve currency by 150% is causing a few more dollars to slosh around the world? And maybe some of those dollars are soon to slosh into shipping stocks. About two-thirds of the publicly traded shipping stocks are trading at book value or less. About 40% of them are selling for half of book value or less. You can't bring a container ship into existence with the click of a mouse, like you can with a U.S. dollar. All that metal has value, especially when you can fill it with shipping containers, iron ore, coal, or other commodities. It has relatively more value as more dollars are printed.
Extreme Value readers have already made substantial dividends and capital gains from investing in the largest ocean-freight carrier serving Hawaii and the U.S. West Coast. The business is protected by the Jones Act, which prohibits foreign flagged ships from certain operations in U.S. ports. For the September issue of Extreme Value, I'm going to look into the shipping stocks for another cheap, safe way to get involved. To learn more about Extreme Value, click here.
A relative over the age of 70 showed me an account statement from her IRA fixed-income account with a major financial institution. So far this year, she has paid more in fees than she has earned in dividends and income. She thought that seemed wrong and wanted me to look at it. I agreed with her. That should never happen in a fixed-income account.
The fees were generated largely from constantly buying and selling various bonds, bond funds, and other income securities. Her account was being churned. She called the next day and closed the account. Since she's over 70, all she wants to do is preserve her capital. She never wants her balance to fall, and she never wants to pay fees. She's going to put the money in a CD earning about 2% or so. That way, she'll never again open up her statement and see she's paid more in fees than she's earned in dividends.
I can hardly blame folks for looking at situations like this and saying, "There ought to be a law…" They don't understand "the law" helps large financial institutions operate with impunity. Worse still, nobody seems to understand "the law" can't do their homework for them. You can't legislate investment knowledge, experience, and hard work.
Exposing investors to the full brunt of risk seems a better option than lulling them into complacence with securities regulations. If you had a six-inch steel spike coming out of your steering wheel, would you drive more cautiously? Well, ditto if you don't operate under the horrible delusion that your Uncle Sam will make sure you don't lose money in the market. If securities laws can't prevent Bernie Madoff from happening, they're useless to you. Securities laws can't prevent you from losing money. That job is up to you and you alone.
Mr. Market is panicking today. The Dow Jones, S&P 500, and Nasdaq indexes are all down over 1% – so is oil. Yields on the 10-year Treasury dropped 10 basis points to 2.51%... The lowest yield since January 2009. For reasons we don't find compelling, everyone thinks Treasurys are safe. So when they see their brokerage account balances fall (which happens about half the time over the long term), they rush into the arms of their Uncle Sam, the old sod.
But maybe Mr. Market is starting to get wise to his old Uncle. Mr. Market is dumping every asset class today but one: gold. By mid-afternoon, the barbarous relic was up a little less than 1% from Monday. It's up about 30% versus a year ago.
What upset Mr. Market today? For one thing, a bizarre Wall Street Journal story discussed the Fed's last meeting. You'll remember that's when the Fed decided to maintain the size of its balance sheet by buying Treasurys (a euphemism for printing money). The article says the Fed presidents were unsure how to act at the last meeting. At least seven of the 17 Fed officials at the meeting either disagreed outright with quantitative easing or expressed reservations.
The largely rambling article did expose a truth we've known for a long time. The Fed doesn't know what's happening in the economy and refuses to admit there's no way to "fix" it, at least not in the sense the Fed means it. You either leave people alone to interact economically or you don't. The former is the best you can do, the latter a fatal conceit. We've said often enough, if there's anything like a solution to our economic problems, that solution is simple but painful. You can't solve a debt problem with more debt.
You, me, and the mass of voters out there need to scream in our Uncle Sam's ear to cut spending on entitlement programs and let everything correct naturally. We need to scream until his ears bleed. We need to scream… even though it's unlikely he'll act. Cutting entitlements and allowing the economy to correct would be political suicide. It's not what the mass of voting ignoramuses put them in office to do.
But maybe if enough people start screaming bloody murder for Uncle Sam to get his hands out of their pants… well… maybe he'll listen. Maybe if enough people get tired of viewing government as their father, and even more tired of letting him have his way with them... I'm not counting on it, but I'm getting more hopeful and optimistic as I get older…
The Fed wasn't the only thing making Mr. Market sick today… Existing-home sales plunged a record 27.2% in July to an annual rate of 3.83 million – the lowest level in 15 years. Inventories rose to 12.5 months (meaning it would take 12.5 months to clear the housing inventory at the current pace) from 8.9 months in June. That's the highest inventory in more than a decade. It makes you wonder what will happen to the larger economy when stimulus disappears. The $8,000 homebuyer credit expired on April 30. And those deals need to close by September 30. Without free money, not even record-low mortgage rates can attract homebuyers.
Though Mr. Market views Treasurys as safe, he apparently views the underlying currency differently. The U.S. dollar is also plunging today. It's particularly odd for the world's reserve currency to take a hit on a "flight to safety" day, isn't it? Mr. Market doesn't see the faith and credit of the U.S. government when he looks at dollars… not anymore… Now he sees a machine, a printing press, that cranks them out relentlessly at next to zero marginal cost.
With interest rates already near zero, and the excitement from its Treasury purchases already wearing off, the Fed is running out of options, and Mr. Market has figured that out.
Fed Chairman Ben Bernanke has famously promised to "drop dollar bills from helicopters" if that's what it takes to prevent the next Great Depression. Bernanke cut his academic teeth studying the Great Depression. He says the Fed didn't print enough money to prevent it. And now, he's got his hands on the money spigot, with a recession/depression looming…
New highs: McDonald's (MCD), Seagate Technologies (STX).
In the mailbag, more tips from readers using our services… Send your e-mail to feedback@stansberryresearch.com.
"I use Optionsxpress.com to buy bonds. The few times the online search by CUSIP number came up empty, I could online chat with the OptionsXpress guy who would give me a bid/ask, and number of sellers. I bought 5 bonds for $35, sounds better than David H's $52." – Paid-up subscriber David Y
"I'm a sheet metal mechanic and most of my work is done on commercial projects in New Jersey. I'm a union member of a local consisting of 120 members of which 60+ are unemployed. The Dodge reports (jobs out for bid) are slim, the Revel Casino in Atlantic City has crapped out on us, school work is just beginning to appear on the books, but other than that nothings happening. Thanks to the crazy African I still have unemployment." – Paid-up subscriber Fatflounder
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Managua, Nicaragua
August 24, 2010