Congressional lawmakers were up until 2 a.m. this morning (ending a 20-hour session) working to change the way Wall Street does business. So what's the result after months of the general media applauding the "Volcker Rule" to ban proprietary trading at banks and other hard-hitting financial reforms? A 2,000-page loophole-filled bill dubbed the "Dodd-Frank Bill"... And what does Senator Chris Dodd have to say about the "sweeping reforms" that bear his name? "No one will know until this is actually in place how it works."
Banks were most worried about the Volcker Rule and Senator Blanche Lincoln's proposal to force banks to spin off their high-powered derivatives operations. But it looks like Wall Street's influence won out as the two measures were watered down. According to Reuters:
Lawmakers built exceptions into the Lincoln proposal that allowed banks to continue to engage in foreign-exchange and interest-rate swaps dealing, which account for the bulk of the $615 trillion industry. Banks would also be allowed to continue to participate in gold and silver swaps and derivatives designed to hedge their own risk.
They would need to spin off dealing operations that handle agricultural, equity, energy, metal and uncleared credit default swaps.
The final Volcker rule was also diluted with a key exception that allowed banks to invest up to 3 percent of their Tier 1 capital in hedge and private equity funds.
The government also included measures to protect consumers from abusive credit card and mortgage lending. Another proposal would hold the credit-rating agencies (Moody's, Standard & Poor's, and Fitch) more accountable for their ratings. The bill also would establish a new Financial Stability Oversight Council to regulate Wall Street's largest institutions. The FSOC also would have the power over any hedge fund or private equity fund with more than $150 million in assets.
Bloomberg has the best summary of the bill here. But really all you have to know about this bill is ... Wall Street's earnings will take a small hit, and there will be more watchdogs and regulation (this is a government bill after all)... But the Wall Street business model of privatizing profits and socializing losses remains largely intact. And the banks will find a way around any part of the bill they don't like.
Congress expects to present this bill to Obama on July 4. And you can be sure he'll fire up the teleprompter to tell America how he "changed Wall Street forever" and "empowered Main Street." In reality, nothing will change.
Another reason to start investing in shale... China. Natural gas currently comprises around 4% of China's energy mix. China's Ministry of Land and Resources wants the number at 10% by 2020. The International Energy Agency estimates China is sitting on top of 26 trillion cubic meters of shale gas. But the country doesn't have the know-how to extract it. So China is tapping its massive financial resources to buy natural gas companies.
China National Petroleum Corp., the largest state-owned oil company, yesterday signed a deal with EnCana that will lead to both companies investing in the development of British Columbia shale reserves. We wouldn't be surprised to see China start buying up some of the smaller shale gas producers in the U.S. – especially those drilling in Eagle Ford (what could be the largest oilfield in the history of the U.S.).
In his April issue, Porter recommended his two favorite companies operating in Eagle Ford. One of them is his favorite buyout target. To sign up for Stansberry's Investment Advisory and access his report, click here. If you haven't already started purchasing companies in Eagle Ford, now is the time. We're seeing a major buyout happen every week. Huge money is flowing into the area. The early investors will make fortunes.
Silver Wheaton's fundamentals are nearly perfect... This $2.5 billion company has almost no debt, almost 600 million ounces of silver reserves, a 63% operating margin, and a secure cash flow from mines in seven countries. In the first quarter, the company netted over $8 per ounce of silver.
Silver Wheaton's strategy has paid off so far... but its results will get even better as the price of silver rises...
Silver Wheaton's costs are fixed, so any increase in the silver price goes straight to its net profit. If you look at Silver Wheaton's share price compared to its earnings, you'll see a direct relationship to the price of silver. In other words, as the silver price goes up, people will pay more for the stock. – Matt Badiali, July 2009, S&A Resource Report
Shares of Silver Wheaton are up nearly 6% today to over $21 – near its all-time high. Matt's Resource Report readers are up 125% on the stock. As the price of silver continues to rise, Silver Wheaton will soar (it's an amplified play on the physical metal). And as our friend Doug Casey says, "Silver's going to the moon!"
New highs: Barnes & Noble (BKS), ATAC Resources (ATC.V).
In today's mailbag, a JFK-inspired rant about lazy people. What else do you have for us? feedback@stansberryresearch.com.
"I was just watching a movie this past week that centered a little bit on JFK. They had his speach from the 60's [when] he said 'ask not what your country can do for you but what you can do for your country,' this really struck a cord with me
"Since when did our society become so backwards they everyone wants a hand out??? we have now become a society of lazy bums looking for handouts or in words of anti JFK "ask not what you can do for your country but what your country can do for you" this mentality is not only Unamerican, but unpatriotic.
"The only path to success is hard work, not handouts, for those who have learned there lessons, not only is it hard work, they work smarter and harder, and thus deserve what they get. the lazy and unemployed deserve nothing. now i understand some people got fired through no fault of their own. But you are now free from the leash of your old job, you now have the freedom to do what you want. you shouldn't live off your neighbors, you should pursue your dreams your life work, unemployment is not an excuse to be lazy. Unemployment (for the long run) is a personal choice for those too scared to do anything else with their life. Unemployment is an opportunity to break the chains of your old job and create something better.
"For those of you who think i am nuts, i have had a job my entire life since the time i was 10 i am now 33 and doing exactly what i want and will do the rest of my life, i don't want for anything, i work the hours i choose to work, and i am about to make double what i made last year due to effort and hard work, and last year was the first time i made over 100k. so am i rich NO, far from it, but i am RICH in life, and when it comes to Porter and Crew i agree with about 80% of what they say, i will admit some of what they say is extreme. but then again they are just trying to make a point. open your minds a little and try to read between the lines and see what point they are making. IE we are on a path of destructive behavior. You need to learn from it and not make the same mistakes. as well as profit from it." – Paid-up subscriber Eric Majewski
"Kudo's to Subscriber Jay Lipeles for his intelligent and well thought article that he shared with Stansberry. As he stated so succinctly, assumptions that risk management has been undertaken, has lulled people into a false sense of security, especially when that risk management is based on faulty assumptions. Many of the problems we face today as a society can be laid at the feet of technology. We have come to rely so heavily on computers today that we have forgotten how to use good old fashioned common sense. Is it much different than students in school that can’t solve a simple addition problem without a calculator. There is no question that computers have contributed tremendously to every facet of our lives. The problem comes when human beings allow the computer to makes decisions for them. The computer is intended to augment the human brain not replace it. We need to remember the old adage – 'garbage in, garbage out.' The computer is only as good as the information put into it." – Paid-up subscriber Mike Riley
Regards,
Sean Goldsmith
Baltimore, Maryland
June 25, 2010