"First generation ethanol I think was a mistake. The energy conversion ratios are, at best, very small."
This quote doesn't come from a Stansberry analyst... It's from the godfather of clean energy, Al Gore. Speaking at a green energy business conference in Athens, Greece, Gore admitted how stupid ethanol is. The U.S. ethanol industry will consume around 41% of the U.S. corn crop this year and 15% of the world's crop, according to Goldman Sachs. And it takes far more energy to produce ethanol than the fuel provides... It's a net negative energy product.
If you believe consuming fossil fuels is bad for the planet, you must believe ethanol is terrible for the planet. In addition to whatever damage it does to the environment, ethanol consumes massive amounts of corn that should be used for food (corn is the single-most important commodity for the world's food supply). Gore even admitted ethanol has "an impact on food prices."
And why did Gore support this absurd mission in the first place? Because he was running for president:
One of the reasons I made that mistake is I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president.
So Al Gore jeopardized the environment and caused people to starve all because he wanted to become president. On a side note... For a great Al Gore slam, be sure to reread our Digest from February 2007, here.
Our friend Whitney Tilson made New York Times headlines last week for his short position in S&A Resource Report pick InterOil (IOC)... You can read the article here. Tilson says he's not worried George Soros is on the other side of the bet (Soros' hedge fund owns 12% of the company – the firm's third-largest position). From the Times article:
Mr. Tilson isn't concerned that Mr. Soros's fund is on the other side of his bearish bet. "George Soros is one of the greatest investors of all time, but he's made his fortune on big macro calls, not stock picks," Mr. Tilson told DealBook. "And you need to do in-depth research on this company to understand why InterOil's not all that its promoters crack it up to be.
The question surrounding InterOil is whether the company is a fraud – not if Soros is buying it from a bottom-up versus top-down perspective. Of course, we believe InterOil holds massive reserves, based on our site visit and our recent meeting with the company's largest shareholder (more on that later).
And to answer the larger question... We would make the case that going long energy, in particular natural gas, is a huge macro call. Consider how cheap natural gas is right now compared with oil... and that all the Big Oil firms – the most sophisticated energy investors in the world – are spending billions to acquire natural gas deposits.
While in Zurich, Matt Badiali, Dan Ferris, and our friend Cactus Schroeder had dinner with InterOil's largest shareholder (even bigger than Soros). We can't tell you the details of the dinner or the man's name... yet. We're working on a special report that will be available soon. We can tell you this meeting only strengthens our conviction of InterOil. We'll keep you updated as this information becomes available.
We believe we're in the early stages of a huge macro trend in gas. And today's "new highs" list confirms our belief. Two companies involved in the shale boom hit 52-week highs on Friday – Magnum Hunter Resources (MHR) and CARBO Ceramics (CRR).
Magnum is Badiali's favorite microcap play in the Eagle Ford development, what many believe will be the largest oil discovery in the history of the United States. Badiali recommended Magnum to his subscribers in July saying it "looks like a rocket ship sitting on a launch pad." He further wrote:
Today, Magnum Hunter is trading for the value of its Eagle Ford acreage. At $10,000 per acre, the company owns about $215 million worth of land. In the Barnett Shale, leases rose to $28,000 per acre in the prime counties. I expect the same thing to happen in the Eagle Ford. That would put Magnum's leases around $600 million... more than double its current value. And its production and reserves are growing in value, too. – Matt Badiali, July 2010 issue of the S&A Resource Report
Badiali also knew the management team running Magnum is world-class (following excellent management teams is one of Badiali's secrets in his new Junior Resource Trader). Resource Report readers are now up more than 50% on the recommendation in less than four months.
CARBO Ceramics, the other stock at a new high, is the world's largest "proppant" manufacturer. Badiali explains proppant in his November 2010 special report, titled "The Bakken Technology: How to Make 400% or More in the Oil Shale Revolution":
Fraccing uses high-pressure fluids (water mixed with thickeners, acid, surfactants, etc...) to force the layers of shale apart. Carried in the fluid are tiny grains of proppant – sand or ceramic spheres – that hold the layers of shale open after the pressure from the fluid fades. It's the proppant that makes the whole technique work, and that's where we're going to invest our money...
It's a bull market in natural gas stocks. In his latest S&A Resource Report, Badiali tells readers how to collect huge dividends from oil and gas producers... and how you can shelter 80% of these dividends from taxes. It's one of the best (legal) ways we know to avoid high taxes. You don't want to miss this issue. Learn more here...
A little comic relief to end today's Digest... Our office has returned from Zurich, but some of the memories from the trip will haunt us forever... For example, unbeknownst to us, our conference manager Kristen Anderson arranged for some traditional Swiss cowbell players to entertain us in between dinner courses.
Before dessert, I was roaming from table to table speaking with friends. In the middle of a conversation, I began to hear my name being chanted by the crowd, then the gentleman I was speaking with said, "Sean... you'd better get up there." The cowbell players wanted group participation, and I was the poor sap the audience chose. Steve Sjuggerud was sitting front row the entire spectacle... And luckily he caught my performance on video. I hope you enjoy my musical debut. You can watch the video here... And yes, I'm wearing a cow hat.
New highs: Coca-Cola (KO), Prestige Brands (PBH), Arch Coal (ACI), CARBO Ceramics (CRR), Magnum Hunter Resources (MHR).
Lots of kudos for Porter's Rattner-booing in today's mailbag. Have you met Rattner personally? What did you think? feedback@stansberryresearch.com.
"I'm sure you're sick of hearing about Steve Rattner, but I just have to say that I REALLY enjoyed reading about your bold yet admirable response (loud boo) to his speech. I recently saw the movie 'Inside Job' and the cast of characters (Goldman Sachs and other heads of finance) are the same type of people who take an elitist view of the world with no consequences for themselves. It truly is disgusting not to mention un-American. Thanks for being true to your character." – Paid-up subscriber David Deahl
"Just happened to catch Becky Quick's interview with Rattner on CNBC the day of the GM IPO. I had no idea of his background at the time, but couldn't help thinking he sounded so self righteous. Thanks for giving us the background on this limousine liberal. He probably rides a Hummer limo to compensate for his lack of... Well, you know what I'm saying." – Paid-up subscriber Mary
"Oh, how I wish I could have been a fly on that wall at the Ira Sohn Investment Conference in NY and seen the look on Steve Rattner's face when you called him out. Way to go Porter! If I could have just 1/10th of your knowledge... I admire you so that I wish you were my brother – heck you could almost be my son. Suffice it to say, we all need a champion such as you. Thank you for your honesty and integrity and do keep up the fantastic work you so love to do." – Paid-up subscriber Ann R.
"Could you please direct me to the link to an EXCEL spreadsheet to set up my portfolio to track my trailing stops? I seem to remember Suj mentioning a link in True Wealth." – Paid-up subscriber Donald Taylor
Goldsmith comment: We recommend using a service called TradeStops, which automatically alerts you when your trailing stops are hit. You can learn more about it here...
Regards,
Sean Goldsmith
Baltimore, Maryland
November 22, 2010