What your chicken nuggets are really made of... Revisiting a secret meeting... July corporate bond issuance hits record highs... More praise for Retirement Trader...
Last Friday, corn prices hit an all-time high of $8.49 per bushel... Prices jumped 3% after the U.S. Agriculture Department downgraded its 2012 corn forecast to 10.8 billion bushels – down 13% from last year's crop and the smallest harvest since 2006. Meanwhile, the acreage planted with corn rose 4% from last year to the highest since 1937.
High temperatures and the worst drought in 50 years have destroyed this year's corn crop. Only 24% of the crop is in good or excellent condition in the 18 major corn states, down from 72% in June.
As we've said before... calorie-rich, nutrient-light corn is one of the foundations of not just the global food system... but the global economy. It's used in everything from food products and sugary drinks to industrial products like diapers and garbage bags.
Michael Pollan, an author and critic of the industrial food complex, uses the chicken nugget as an example of corn's pervasiveness. He says the chicken nugget...
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... piles corn upon corn: what chicken it contains consists of corn [because corn is used as feed]... the modified corn starch that glues the thing together, the corn flour in the batter that coats it, and the corn oil in which it gets fried. Much less obviously, the leavenings and lecithin, the mono-, di-, and triglycerides, the attractive golden coloring, and even the citric acid that keeps the nugget 'fresh' can all be derived from corn. |
Soaring corn prices are forcing farmers to liquidate their cattle and send them to slaughter early to save on feed costs. At Callaway Livestock Center in Kingdom City, Missouri, animals normally sold at 700 pounds are now changing hands 100 pounds lighter. And the farm is selling twice as many each week, rancher Claude Niemeyer told BusinessWeek.
For our contrarian readers, our friend Doug Casey, who owns cattle in Argentina, said cattle is "a super investment right now."
The increase in corn prices has the world's governments worried. As we discussed in the July 11 Digest, high food prices can topple governments. A hungry population is quick to riot... In 2010, facing high food prices, riots broke out in two dozen countries.
The G-20 is currently planning a meeting to discuss rising food prices. And White House officials said Obama will tell his Agriculture Department to buy up to $170 million worth of meat and poultry to provide farmers relief. The Department of Defense, a large purchaser of meat, will also urge its suppliers to speed up their purchases.
Porter started writing about a looming food crisis in 2010. One of our business contacts, an agricultural billionaire, invited Porter to a secret meeting in New York City to discuss the possibility of a global famine. The CEOs of two major global corporations were there... as was a senator, a former central banker, and half-a-dozen of the world's most accomplished investors.
At the meeting, Porter pointed out a core problem behind rising food prices, the weakening U.S. dollar. In the November issue of Stansberry's Investment Advisory, he recounted telling the group...
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In terms of gold, agricultural commodities prices have fallen by about 50% over the last 10 years. |
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Obviously it's not the price of food that's the problem. It's the collapsing purchasing power of the U.S. dollar that's led us to this situation. |
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That's what's going to cause a food crisis – and an energy crisis. |
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The real question we should be discussing isn't food. It's money. And more specifically, the lack of a sound world reserve currency. |
Porter recommended shares of Monsanto to profit from the situation. At the time, he wrote...
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The combination of increasing global demand coupled with the Fed's quantitative easing makes a huge move higher in these commodities likely. Prices could soar high enough to trigger a global crisis. |
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Whatever the temporary political solution, the ultimate answer is more production. The only way to increase farm productivity substantially is better technology. One company [Monsanto] is ideal for the job. – Porter Stansberry, November 2010 Stansberry's Investment Advisory |
Monsanto produces seeds and develops chemicals and biotechnology to help farmers control weeds and insects. The company also provides other seed companies – including its largest competitor, DuPont – with technology for their seed brands.
Porter's recommendation proved to be one of his most controversial. After the original write-up, we received hundreds of angry e-mails about how evil Monsanto is. Most objections focus on the company's production of genetically modified seeds. Porter responded to that criticism in this Digest essay.
Regardless... our job is to provide excellent investments to our readers. And in the case of Monsanto, we did just that. Porter's subscribers are up 49% on the recommendation.
Last month, companies sold $75 billion of investment-grade corporate bonds in the U.S. – the busiest July ever. According to Thomson Reuters, total sales for 2012 are on track to hit $1 trillion.
With interest rates at record lows... many large companies are locking in obscenely small long-term borrowing costs. And yield-starved investors are happy to buy. Jim Probert, head of investment-grade banking at Bank of America, told the Wall Street Journal, "I've been doing this for 23 years, and I've never seen demand for new issues this large."
At a 3.2% average yield, investment-grade corporate bonds are paying nearly double the yield on comparable Treasurys. And due to corporate America's flush balance sheets, some investors view corporate bonds as safer than U.S. government debt...
"U.S. corporate bonds are becoming a flight-to-quality asset class," said Michael Seigel, global head of insurance asset management at Goldman Sachs. Funds holding investment-grade bonds took in $69 billion this year through July. Treasury funds only attracted $2.1 billion.
Eventually, rates must go up. But with the Federal Reserve committed to holding the federal-funds rate at zero until late 2014, the bond bull market could continue for years. The trend is certainly up (and readers of Dr. David "Doc" Eifrig's Retirement Millionaire and Steve Sjuggerud's True Wealth have profited from their recommendations to buy corporate bonds). For now, companies are happy to take advantage of the low cost of capital.
Last month, TransCanada PipeLines sold $500 million of 10-year debt for 2.5% (down from 3% from its December bond issue). "When you have that opportunity, you go," Donald Marchand, executive vice president and chief financial officer at TransCanada Corp., the parent company of TransCanada PipeLines, told the Journal. "There's only one direction rates ultimately go, and that's up," he added. "We're preparing for this by borrowing long-term money now."
New 52-week highs (as of 8/10/12): BlackRock Corporate High Yield Fund (HYV), Constellation Brands (STZ), Automatic Data Processing (ADP), 3M (MMM), Chevron (CVX), ExxonMobil (XOM), and GenMark Diagnostics (GNMK).
In today's mailbag, still more praise for Doc Eifrig's Retirement Trader. To date, Doc has closed 79 consecutive series of winning options trades – likely the greatest accomplishment in newsletter history. If you've had success selling puts with Doc, we'd love to hear about it. You can send your feedback to feedback@stansberryresarch.com.
"Over the past 20 years, I have lost over [$500,000] trading options. I swore I would never trade them again. I read and followed Doc's naked put recommendations on paper. Then, I hesitantly started selling naked puts. In the past 6 months my portfolio has increased about 50% in value! Doc's recos are fantastic!" – Paid-up subscriber Jim McLeod
"As an Alliance member, I receive AND STUDY EVERYTHING published by Stansberry and Associates; not only for the trading ideas presented but also for the educational value of 'learning how to fish.' Prior to my association with Stansberry, I was a successful, self-taught investor without a complete understanding of how to minimize risk and, most importantly, plan and execute an exit strategy for a profitable position.
"Over the years, I have learned about trailing stops, how to use options to reduce risk and increase returns, take the emotion out of investing and can apply these valuable lessons to my entire portfolio, not only the positions related to research from Stansberry and Associates. I believe I paid somewhere around $6,450 for my membership and about $149.00/year for maintenance.
"I credit my Alliance membership as being directly responsible for over $21,000 of options trading income I have produced in my portfolio YTD in 2012 (I never traded options prior to reading S & A materials) and believe that represents a superior return on investment than the vast majority of MBA recipients realize; but, maybe I am mistaken." – Paid-up subscriber K.M.
Regards,
Sean Goldsmith
New York, New York
August 13, 2012