The S&A Digest: Matt Badiali on The Digest

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/19/2013

Matt Badiali on The Digest... Blame MTV... Blame Venezuela... America's gas tank... a $7 oil dividend... Our marketing hits a 'new all-time low'...

Goldsmith comment: Ah, poetic justice... Porter is in Montalcino, Italy – which offers possibly the greatest food and wine in the world. But don't worry; he's not having fun... honestly. He e-mailed me this morning saying he's bedridden and vomiting. He can't eat the delicious food... or drink Barolo. And he's still without Internet. He sent the email via BlackBerry.

So we asked Matt Badiali, our energy and precious metals analyst, to write The Digest today. Take it away, Badiali...

 According to the Financial Times, the big engine makers – Pratt & Whitney, Rolls Royce, and General Electric – are building the next generation of jet engine out of "super-alloys" to cut fuel consumption. The alloys are a special mixture of steel and exotic metals like rhenium, cobalt, and titanium.

Rhenium, in particular, is so rare and in such demand that the price hit a record of $5,000 per pound (more than $300 per ounce) last week. That's more than double the price this time last year.

But commercial rhenium production comes from roasting copper ores that contain molybdenum. That could give some copper companies a kick in the balance sheet for 2008. We hold a number of copper/molybdenum producers and explorers in the S&A Prospector portfolio.

 Wealthy, hip Chinese urbanites want to own... Hummers. Beijing Auto rolled out its own version, called the Trojan. And SUV imports from traditional luxury carmakers BMW, Porsche, Lexus, and Cadillac hit record levels in 2007.

Chinese demand for SUVs began to show serious momentum in 2003 – sales doubled to 200,000 that year. The industry has enjoyed double-digit growth every year since, with 370,000 of the behemoths sold in 2007.

The iconic image of America for the last decade has been the big, glittery SUV. Now wealthy Chinese people want to live like Westerners.

Demand for big cars fuels demand for oil – China's consumption grows about 8% per year. In addition, the government subsidizes gasoline, so prices are nearly 40% lower than here in the U.S.

You see, everybody wants to blame "greedy" oil companies for high gas prices... but the real reason is our TV shows. All that TV we exported for the past 10 years showed the world how we live and, more importantly, what we drive.

So don't blame ExxonMobil for high oil prices, blame MTV.

 We're publishing the July issue of the S&A Dividend Grabber tomorrow, and Goldsmith's showing readers how to grab a nearly $7 cash dividend and own shares in one of the top oil and gas companies in the country. This is the perfect way to buy into oil right now. You get upside potential holding the stock, but you also get a huge cash payment to protect your downside. To learn more about Dividend Grabber, click here.

 Founding EnCana CEO Gwyn Morgan says oil demand is growing fastest in countries that regulate and subsidize the price of gasoline.

Last week, in his regular editorial in the Canadian newspaper the Globe and Mail, Morgan said government oil subsidies are the problem with oil prices. According to Morgan, these countries are to blame.

On one level, you can understand why a government would want to subsidize fuel. Trucks and cars are far more productive than feet and hooves. Keeping fuel prices within reach of the population drives the economy and puts taxes in the government coffers.

But Morgan believes price supports suppress the natural market forces that would normally weed out inefficient engines and other forms of transportation.

 Legendary oilman and billionaire T. Boone Pickens called our imports of foreign oil "the biggest transfer of wealth in the history of mankind" – from the U.S. to oil-exporting nations.

In an interview with Oil and Gas Investor, Pickens said we pay about $700 billion per year for imported oil, a figure he predicts will rise to $10 trillion within the next 10 years. America is increasingly at the mercy of oil-producing countries.

Pickens would like to see this as a central issue in the upcoming presidential campaign. But while the problem may be debated, it will probably sound like two fifth graders discussing the theory of relativity. Neither candidate has a solid grasp of the energy issue.

Democrat Barack Obama supports punitive "windfall profit taxes" on energy companies, which would suppress exploration and supply. Republican John McCain wants to suspend gasoline taxes. While that might provide a brief respite, it would only ramp up demand.

While neither candidate has yet picked up on this theme (and don't hold your breath), T. Boone's ideas and his half-a-century of experience in the oil industry would be a welcome addition of knowledge and experience...

 T. Boone made his most recent investment in a Texas wind farm. That's surprising because he knows as well as I do that renewable electricity doesn't reduce our need for oil.

He claims his wind farm will offset demand for natural gas (which is used to generate electricity). And natural gas can then be used to fuel vehicles. I'm skeptical. I don't see any cars, trains, trucks, or boats in my neighborhood running on natural gas... but maybe they're coming.

In the meantime, the U.S. must continue to import oil. We simply don't have the resources to supply all our own oil, unless something changes dramatically on the demand side... and I don't mean building more solar power plants or wind farms.

I've said this before, and I'll repeat it here: Electricity isn't oil.

That means you can't blunt the demand for oil through nuclear, solar, or wind energy. Oil is fuel. More than 75% of every barrel of oil we use goes to pushing a car, train, boat, bus, or plane.

 T. Boone and I do agree on one point: The only way out of our current oil dilemma is through dramatic technological innovation. We need a new way to move ourselves and our stuff around. Maybe that will be natural gas, but I'm not hearing anything dramatic on that front.

Until then, we're buying oil.

And I'm buying tar-sand oil. Canada is a safe and geographically ideal partner sitting on oil reserves second only to Saudi Arabia. I call it America's gas tank.

The thing about the tar sands is that most investors still aren't convinced those companies will make any money. That's great for those of us who know better, because it means that we can still find great investments – something that's getting tougher in the oil market these days.

 One of the Monthly Dividend Program's Top 10 stocks, AltaGas Income Trust, hit a new high yesterday. Readers are up almost 14% on the recommendation. Goldsmith also added another energy stock to the Top 10 portfolio. This stock is one of the best Canadian income trusts, and yields nearly 11%. MDP subscribers can find the new pick on the website. To learn more about MDP, and how to collect 120 dividend checks every year, click here...

 New highs: XTO Energy (XTO), Opti Canada (OPC.TO), International Coal Group (ICO), Pioneer Drilling (PDC), U.S. Natural Gas Fund (UNG), AltaGas (ALA-UN.TO), Trilogy Energy (TET-UN.TO), Comstock Resources (CRK), Plains Exploration (PXP).

 Not much by way of the mailbag. Porter instructed me to stockpile the personal attacks against him, so he can answer them when he gets out of bed and back online. Fun times await... feedback@stansberryresearch.com.

 "In my humble opinion, Susan Leder is spot on. As a veteran and now displaced wholesale mortgage rep, I know first hand how toxic countrywide's mortgage portfolio is. When we competed with them for alt-a loans, it was close the deal no matter what. Ridiculously inflated appraisal, no problem. Borrower is a self employed dog-walker making 15k per month, legit. Funds to close paid by seller or rolled into the loan, yeah why not. It was as if their underwriters were getting paid on closing volume, not paid to protect the banks/shareholders money. If you stacked 100 C-Wide loans on top of each other, there is a statistically significant chance that the entire pile would spontaneously combust. This is just Alt-A mind you, I can't imagine how dirty the subprime portfolio is. B of A better not spend all those 15 cent dollars in one place." – Paid-up subscriber Rich Hanna

 "A new low in your marketing... Over the years you have continually attempted to seduce subscribers into trying one of your new publications by substituting cleverly crafted marketing names for common financial investment products. But your hyping of True Income has established a new all-time low in your marketing strategy (which for you is really saying something.) You almost had me hitting the 'Subscribe Now' button, but thankfully, before pulling the trigger upon due dilligence I discovered that your touted 'Secured Investment Contracts' are nothing more than bonds that primarily fall into the 'junk bond' classification. No wonder your marketing genuises had to come up with a clever un-name. What is 'secure' about junk bonds? Bet you won't reveal what the default percentage is on these high risk investments." – Paid-up subscriber Larry Herbst

Goldsmith comment: What's "secure" about these "junk" bonds is that the companies Mike recommends have enough assets (even under stressed conditions) to cover all their debt. That means you get huge interest payments and principal repayments with minimal risk. If you've bought the five bonds Mike has recommended, you're receiving large, safe interest payments on every one.

 Also, we've openly referred to the bonds in True Income in The Digest... and we have thousands of readers who have happily entered into lifetime subscriptions with us because of "clever" marketing claims.

Yes, our marketing can be sensational at times, but we offer a no-questions-asked refund on everything we publish. If folks like our work and our marketing, they stick around. If not, we refund their money and part as friends. What's low about that? (You won't find a mutual fund or hedge fund willing to return you their fees after losing your money.) Readers who'd like to judge our work for themselves can click here.

Regards,

Sean Goldsmith

Baltimore, Maryland

June 18, 2008

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